As the economy's gradual recovery continues, increased construction activity and contractual liability demands faced by builders have driven growth in both site pollution and Contractors' Pollution Liability (CPL).

“We are seeing a dramatic uptick in non-environmental contractors buying Environmental polices,” says Bill Pritchard, president of wholesale environmental brokerage Beacon Hill Associates Inc., in Charlottesville, Va. “At least 30% of our new business involves plumbers, roofers, electricians and other 'regular' contractors who are either being required to buy it or are buying it on their own.”

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Brokers are also reporting that owners and general contractors are increasingly less willing to waive contractual language requiring Environmental coverage and approve higher limits of insurance. “We're seeing limits of $10 million requested—even from contractors performing pretty innocuous work, and that demand is being pushed down by the project owner,” says Pritchard.

The only area of construction where demand for CPL is dropping is in the energy sector, where a free-fall in oil prices has had a dramatic impact on facility construction. “In some cases, we see midterm policy cancellations as energy-sector contractors try to deal with a declining revenue stream,” says Bill McElroy, senior vice president of environmental at Liberty International Underwriters.

The increase in policy buying has been followed by an uptick in claims. Marcel Ricciardelli, senior vice president of environmental at Allied World Assurance Company Limited, reports that most site pollution claims involve three key areas of loss: fires and explosions where contaminants are spread, accidental tank leakage, and mold. “As the economy continues to expand, we've seen growth in construction in the hospitality sector addressing delayed renovations and updates, which has contributed to a spike in mold claims,” Ricciardelli says.

However, the big driver of claims costs is not the actual claim payment, but the dollars spent on defense. “More claims are being reported, even if coverage does not apply, because there is simply a better awareness of environmental issues and pollution policies. There hasn't been a sea change in the technical aspects of claims themselves,” McElroy says.

Despite the increase in claims and demand for coverage, pricing continues to decline in both site pollution and CPL for most risks. “Over the past five years, we have seen a general slow erosion in the rate environment,” McElroy says.

That erosion has been caused by a flood of capacity. “Almost every month we see a new company writing environmental coverage. There are in excess of 50 companies, by our count, writing some sort of coverage today, which has really driven down price and driven up the amount of coverage available,” Pritchard says.

Competition is particularly fierce in CPL. “If an environmental underwriting company writes only one line of pollution coverage, it's likely that line of coverage is CPL. It's the most popular and congested space in the pollution marketplace, with the number of carriers offering it probably doubling in the past five years,” says Bill Hazelton, division president in construction and environmental risk in ACE Group's New York offices.

Coverage is downright dirt cheap, even for companies that have a higher risk of loss—such as those that maintain underground storage tanks. “The average cleanup for a storage tank [leak] is $200,000, but premiums start at just $500,” says Stacy Brown, president of Freberg Environmental Insurance.

Carriers also continue to broaden coverage, including adding defense costs outside the limits on CPL policies, offering blanket non-owned site coverage automatically, and converting claims-made policies to occurrence forms.

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Unearthing opportunity for producers

“Any agent is crazy not to put time in to understand the opportunity of providing pollution coverage,” Pritchard says. “It increases revenue, strengthens relationships with your client and enhances professionalism.”

To seize opportunity in the market, agents and brokers need to start by understanding that every account they insure has a pollution exposure. “Things like indoor air quality, mold, odors and off-gassing may seem like they're not an issue, but if you own an office building and you get sued for the air making someone sick, there is no defense for that under GL,” says Ricciardelli. “Many businesses have emergency generators with backup tanks. Apartments have pool chemicals. Everyone has an exposure.”

In a competitive market, agents and brokers need to differentiate themselves, beginning with developing expertise. Speed also plays a critical role in making a successful sale in pollution coverage. “We find that if we're the first quote in the door, that quote tends to bind more often than not,” says Brereton at Freberg.

Brokers should also be aware of the need to coordinate between pollution and GL. Some carriers offer combined GL and CPL policies to eliminate potential squabbling over responsibility for a covered loss.

Technology is also playing an important role in the risk management process. For instance, in 2014, ACE introduced ACE Alert, a smartphone app that connects an insured to an emergency response center than can provide expertise on selecting cleanup experts and help begin the time-sensitive process of remediation more quickly.

Pullback on the horizon?

Although the Environmental liability market has traditionally been dominated by E&S carriers, there is continued encroachment by standard-lines insurers into the sector. This will continue to put downward pressure on rates.

“Right now you're seeing standard markets offering ISO pollution cover, which is limited compared to what we offer, which is quite broad. However, I can see the progression of standard markets offering broader coverage, and at some point we may meet in the middle,” says Brown.

“Agents and brokers are also becoming more sophisticated, suggesting the coverage and offering quotes,” he adds. “They are realizing that if they don't, and an insured suffers a loss, it can result in an E&O claim.”

How long the Environmental sector remains a buyer's market remains to be seen.

“It's inevitable that loss frequency will continue to climb and that claims results will get worse simply because we are charging less money for broader coverage,” adds Pritchard. “When it all shakes out—not today, but a few years down the road—the question is what carriers will need to do, in order to deal with those results.”

'Brownfield' business booming

One notable uptick in construction activity is increased interest in the development of “brownfields”—generally defined as property that had previously housed industrial or commercial development, and in which the presence of contaminants is expected.

These sites present multiple exposures, which is where insurance comes into play to transfer the risk of unexpected loss from a property purchaser or developer to a carrier. Susan Neuman, principal at The The Environmental Insurance Agency Inc. (EAI) in New York, reports seeing a “tremendous” increase in pollution policies for brownfield developments.

Neuman, an attorney who used to litigate pollution claims against insurance companies, founded EAI to provide Environmental insurance coverage for contaminated property transactions and high-risk exposures, including tanks, environmental contractors and consultants, and operational sites and facilities.

“It's not just new business that has increased; I've also seen several multi-year policies approaching expiration that were renewed, which is unusual,” she notes. “Typically in the past, those policies would be purchased when the redevelopment began, then put in a drawer and forgotten about. The fact that the property owner is interested in renewal tells me that there is a growing awareness of the need to have coverage in place.”

Unlike other areas of Environmental insurance that have seen a capacity-driven decline, pricing for brownfields has been driven up by demand. Although site pollution liability for brownfields can still be readily found, the availability of cost cap coverage, which pays for remediation costs that exceed estimates, has virtually dried up.

“Cost cap coverage began disappearing in 2010, and today there are only two carriers offering it,” says Neuman. “The premium is also typically based on 15% of the estimated limits, which is prohibitively expensive for most owners.”

Related: ACE: There is a global need for environmental and pollution protection insurance