Market-driven solutions to environmental liability risks should take precedence over possible EU-enforced compulsory financial requirements, the International Underwriting Association has stated.
In a series of policy statements the association’s Non-Marine Environmental Committee argues it would be too difficult to assess a suitable minimum level of security that companies would be mandated to hold against potential environmental damage. Such a move could also lead to firms only buying the minimum level of security to meet their statutory obligations, rather than a level which reflects their actual exposure.
The issue of compulsory measures was examined by the European Commission as part of a review last year of the Environmental Liability Directive. But a ruling on the subject was delayed. Now the IUA has revealed its own view in a document outlining the key issues facing London company market underwriters working in the emerging market for environmental liability risks.
Chris Jones, IUA Head of Market Services and Secretary to the Non-Marine Environmental Committee, said: “Market-driven solutions, competitively put together and freely available, are the preferred option. Essentially each company should choose how to protect itself against environmental liabilities and to show that they will be in a position to cover losses caused by their activities.”
The Non-Marine Environmental Committee has also called for the industry to concentrate on collecting claims data and educating companies about their potential exposures. It declared that there is a wide and competitive range of specialist environmental insurance products available in the UK and European markets. Whilst traditional liability policies provide some environmental protection they are often not designed to be comprehensive and may have significant potential gaps in coverage.
Mr Jones added: “The introduction of the EU’s Environmental Liability Directive has clarified responsibilities and enforced the ‘polluter pays’ principle.
“However, due to the slow implementation of the legislation, there have been relatively few incidents that have fallen within its scope so far and it is difficult to assess its impact. More work needs to be done on collecting environmental liability claims data and the IUA would welcome a registration system for recording information on the cost and frequency of claims.
“Environmental disasters are relatively low in frequency and reliable data will likely take years to emerge. But an important focus should be on smaller losses around £500, 000 that can be faced by small to medium enterprises and force such firms into liquidation. The capacity to cause environmental damage is not a function of company size, but company activity.”
About the IUA
The International Underwriting Association of London (IUA) is the world’s largest representative organisation for international and wholesale insurance and reinsurance companies. It exists to promote and enhance the business environment for such companies operating in or through London. The IUA’s London Company Market Statistics Report shows that premium income for the company market in 2010 was £12.6bn net of commission or £16.4bn gross written premium. These results are based on a comprehensive survey of 57 companies.