"The environmental market is different from other lines of coverage because it is rarely a required protection," explains Gina Jones, vice president and director of environmental programs at Burns & Wilcox. "Often, those who have environmental coverage do so because they have a smart risk manager or they have experienced a loss in the past."

She notes, however, that because this coverage isn't always required, it is often thought about last and removed first: "Environmental lines do not follow the same trends as other lines of business, such as General Liability or Property. As those lines increase and the costs of premiums rise, Environmental coverage is often cut."

As we head into 2018, Stacy Brown, president and CEO of Freberg Environmental Insurance, characterizes the Environmental market as highly competitive and "very soft," especially with environmental contractors and consultants. Brown sees an endless stream of new managing general agents (MGAs) and carriers entering this line — "now close to 60 markets," he says, "all vying for accounts in a very limited Environmental marketplace. There are perhaps 80,000 to 90,000 contracting and consulting firms in the U.S.; that's a lot of carriers and MGAs trying to build market share."

The environmental insurance market is still responding to the 2016 decision by AIG to cease writing stand-alone Pollution Legal Liability (PLL) policies, aka site pollution coverage, in the United States and Canada. (Photo: National Underwriter)

Pollution market: still soft

According to Willis Towers Watson's "Marketplace Realities 2018″ report, insurers are continuing to compete on pricing for displaced AIG business while implementing creative solutions to the limited availability of engineering data. Further, the monoline site pollution market has experienced increased competition and continued soft pricing for most site pollution placements.

Brown points out that the CPL-only coverage market is also very competitive but the marketplace is much larger, with artisan contractors and general contractors driving business — therefore creating more opportunities. "Still, all the new competition is driving minimum premiums down to $1,000 or even less for some CPL-only accounts — an incredible turn from just a few years ago," he notes.

The site pollution market is a bit less competitive and the marketplace is limited only by the ability of brokers to sell the coverage, says Brown. "The number of carriers writing site pollution is smaller than [those] writing CPL, as site pollution requires more underwriting expertise," he explains. "The carrier field narrows further for complex risks with known environmental conditions, multiyear terms, and 'bespoke' policies, some with terms up to 10 years and beyond."

Building demand

The uptick in construction activity over the past few years continues to fuel demand for PLL products as well as builders risk coverage. Michael Tighe, senior vice president and northeast regional manager at Beacon Hill Associates Inc., also credits the increase in demand to awareness of environmental exposures, examining the amount of risk that can be transferred through an insurance policy, and the overall improved economy and resulting healthier corporate balance sheets.

Related: Construction activity is creating opportunity for carriers and brokers

Bill McElroy, global head of Environmental Insurance at Aspen, definitely sees demand in insurance for construction coverage continuing to grow, as does Joe Constantine, senior vice president, AmWINS Brokerage of Washington, who says that "the majority of contracts today require some level of pollution and/or professional coverage."

Indeed, Freberg's Brown notes, CPL coverage is standard in many construction contracts and specifications; he forecasts growth in CPL coverage, including Owners and Contractors Protective Liability Coverage. Willis Towers Watson's 2018 report notes that site pollution and CPL wrap-up products are being coordinated to address both pre-existing and construction-related exposures at project sites.

Jones at Burns & Wilcox notes that the growth in U.S. construction and the boost in environmental protections being sought on those projects is very good for this market. As large contractors realize the environmental exposures of a project, they are increasingly requiring the subcontractors they work with to purchase environmental insurance.

"Although environmental coverage may not be federally or state mandated, many larger construction firms request it, which drives those working on the project to purchase coverage to begin work," she says. Jones adds that lending institutions are more commonly requiring contractors to assume financial responsibility and provide assurance for environmental liabilities associated with construction projects — in effect, requiring Environmental insurance as a condition of their loans.

Rod Taylor, managing director of Aon's Environmental practice, notes that the increasing complexity of construction and infrastructure projects is driving demand for coverage: "Today, roads are typically being built in urban areas, not cornfields. There is significant exposure for projects in urban areas."

Related: Environmental insurance: A tale of two markets?

Tony Lehnen, managing director, Environmental Practice Insurance & Risk Management, and Douglass Cameron, account executive at Gallagher Environmental, cite growing recognition among clients and lenders that Environmental risks are not covered in standard P&C programs. "Contractors, architects, and engineers — alone or in combination — can be the targets of environmental claims for cleanup costs, property damage, or bodily injury, and the EPA considers the construction industry to be among the greatest potential polluters," says Lehnen.

Mold and indoor air quality (IAQ) issues continue to be a major source of trouble. (Photo: Photo by Kevin C. Downs via Newscom/ALM Media archives)

Mold claims persist

Willis Towers Watson research cites increasing claims based on mold and IAQ issues in the hospitality, real estate, and healthcare spaces. Furthermore, Willis Towers Watson notes that the majority of environment claim activity related to the damage caused during the 2017 hurricane season will likely arise from unexpected clean-up costs and PLL caused by the spreading of historic or pre-existing contamination, landfill containment breaches, floating drums of chemicals and storage tanks, sewage system backups and mold damage.

Related: When is humidity or mold damage excluded?

According to Jones, because mold resulted in some of the largest claims in 2017, the industry is tightening up on residential and hospitality risks. "In addition, environmental conditions are exacerbated due to natural disasters such as the chemical releases from Hurricane Harvey in Houston this past summer," she says. "This is a prime example of how every business has an environmental exposure — whether or not they are willing to acknowledge it."

As mold claims become more frequent, the costs to remediate and restore properties are ballooning, says Tighe: "We see many of these claims in the hotel industry as they implement renovation schedules. We are also aware of, and have been involved in, airborne legionella claims stemming from HVAC cooling towers in hotels, casinos, hospitals and amusement parks." He finds that costs for bodily injury, finding the source, remediation and treatment, and costs to defend can come in at well over six figures.

Related: Today's hospitality guests want new experiences and technology

Matthew Pateidl, vice president, senior environmental risk specialist at Lockton, expects to see underwriters pay specific attention to IAQ issues associated with remodeling and new construction projects in the works for Class A office space, hospitality, and habitational apartments.

Gallagher's Cameron notes that more carriers are shying away from quoting business within a specific industry that has shown increased claim activity over the past few years — for example, IAQ claims associated with mold and Legionella for multitenant habitational entities such as hotels, apartments, and other living facilities; vapor intrusion claims associated with contaminants found in soil and groundwater; manufacturing and distribution claims; and municipal potable water claims.

"When dealing with a difficult exposure, insurers are beginning to increase risk-specific retentions to address the growing frequency and severity of Environmental claims," Cameron adds.

As we move through 2018 and beyond, the term 'Environmental market' will continue to be redefined. (Photo: iStock)

Innovation needed

"As even more markets enter the space, each one will need to find ways to support itself — if not by price, then by appetite," Constantine says. He finds that the appetite continues to expand far beyond what has long been deemed environmental risk. "We are seeing, and writing, completely non-environmental accounts on combined General Liability/Pollution policies. Between 10 and 20 years ago, markets would require a minimum of 50% of the risk to meet their definition of 'Environmental.' Today, some markets advertise as low as 20%."

Lehnen believes this marketplace will likely remain robust and competitive throughout 2018, with managers and lenders focusing more attention on environmental risks and a continuing increase in available Environmental insurance options. "Insurers continue to enter the marketplace and demand for Pollution Liability products is increasing across the board, whether due to perceived risk or contractual requirements," he says. "At the same time, a growing number of carriers are considering increasing their capacity and coverage options, while also tailoring policy language to meet the varying needs of each specific risk."

Pateidl at Lockton notes an abundance of capacity in the marketplace. While AIG decided in 2016 to cease writing stand-alone PLL policies, the exodus was not immediate. Due to the nature of multiyear policy terms continuing to expire, it will be several years before all of those policies are ultimately replaced. "Several environmental carriers grew from AIG's decision two years ago, and there will still be a lot of AIG policies renewing at three-to five-year and even 10-year terms. Carriers are aggressively going after that," he says.

McElroy at Aspen believes the outlook for the environmental market in 2018 can best be described as uncertain. He believes that because of an excess of supply over demand, competitive pressures have expanded terms and conditions and reduced rates to a level that presents challenges to identifying the opportunities that effectively meet underwriting appetite.

"Some carriers have responded to this pressure by compromising underwriting standards and expanding into areas only tangentially related to Environmental," he says. His solution: working closely with broker partners and clients to find creative solutions to meet the risk-mitigation needs of this ever-changing and increasingly complex market environment.

See also:

It's only natural: The Environmental insurance market, at a glance

The next big thing: Environmental insurance for the rest of us