Think Like an Underwriter
- By Jayne Cunningham, James Wilkins
- Aug 09, 2010
In today’s soft insurance market, capacity for environmental insurance is at an all-time high and additional insurers are pushing their way into the marketplace daily. Yet, even now, the most sophisticated insurance programs and attractive rates are reserved for those manufacturers deemed the “best” risks.
What makes one manufacturing facility more attractive than the next?
Obtaining adequate coverage to protect assets and maintain shareholder confidence ─ at reasonable premiums ─ is high on every risk manager’s (RM’s) agenda. Assessing environmental risk from an underwriter's vantage point can help RMs do just that.
The following five considerations offer a starting point for positioning the environmental exposures of your facility and operations, which will help you secure some of the best possible terms and conditions in the marketplace.
Disclosure. An underwriter must have in-depth disclosure of site-specific pollution and operational issues, past and present, in order to provide coverage that will accurately and adequately address key exposures and affect the transfer of risk. The more an underwriter knows about the historical use of a site and its current/future operations, the better equipped the underwriter is to custom-tailor coverage and manuscript language to address the most complex environmental issues. Furthermore, full disclosure helps preserve your rights under the policy. For example, some carriers offer policies that provide coverage for known pollution conditions, as long as these conditions were disclosed in the application for coverage.
Financial and corporate overview. Along with confirmation that a firm is financially sound, an underwriter will want to know about a company’s culture and commitment to proactive environmental risk management. Capital improvements, upgrades, maintenance, monitoring and annual training are all clear indications that a manufacturer is viable and planning for the future. Financial records documenting investment in state-of-the-art technology designed to enhance environmental risk management activities (e.g., source reduction, waste minimization and containment) and reduce the potential for pollution liability (e.g., increased regulatory compliance) is valuable information that can result in favorable coverage, longer policy terms and premium credits.
Risk management. Underwriters will carefully evaluate multiple facets of a company’s in-house risk management efforts. The human factor is assessed, and credit given to firms that invest in qualified environmental RMs and support departments and personnel (e.g., general counsel, real estate, remediation, etc.). They will examine training manuals/certifications as well as the training frequency and qualifications of key personnel. The heavier the industrial exposure, the greater the focus on the staff dedicated to pollution prevention, regulatory compliance and training.
If a corporation engages contractors or vendors for onsite work, the underwriter will want to know about the screening processes used for vendor selection and measures taken to mitigate liability due to the acts, errors, omissions and negligence of these third parties, such as indemnification wording in contracts and requirements that a contractor maintain its own general, professional and environmental liability insurance.
Underwriters will want to review formal documents, such as Spill Prevention, Control, and Countermeasure (SPCC) plans; Risk Management Plans (RMPs); Storm-Water Pollution Prevention Plans (SWPPP) and environmental due diligence plans.
Compliance with requirements imposed by regulatory agencies with jurisdiction over onsite operations and personnel, and general adherence to industry-specific guidelines typically result in favorable underwriting opinions.
Sustainability. The general population and end users focus on “green” and environmental sustainability. Insurers take a positive view of manufacturers that can demonstrate a commitment to improved management of raw materials and wastes and reductions in point source and nonpoint source emissions and discharges.
Operations. Underwriters want to understand your business and operations. Any evidence of improvements in environmental risk management ─ whether it’s the complete replacement or refurbishment of a production line and related infrastructure, a simple change to a less hazardous material or even the total elimination of a particularly toxic substance or antiquated process ─ will be favorably received by the underwriting community.
The manufacturing sector has made great strides in environmental management, pollution prevention, regulatory compliance, waste minimization, recycling, alternative energy solutions and long-term environmental sustainability, all of which have minimized negative environmental impact. Consequently, manufacturers and RMs are now competing with many ISO 14001-certified facilities and competitors that are actively driving toward a “total business commitment” to the environment and “zero landfill” status. Inattention to and lack of adequate environmental risk management and pollution controls is no longer the norm, it is the exception.
Actively demonstrating industry-leading commitment and best practices in these five aspects of your business will help position your facilities and operations in the best possible light, opening opportunities to secure state-of-the-market pollution legal liability and cleanup protection at a competitive price. This includes coverage for such key areas as:
- First-party discovery triggers,
- Transportation pollution liability,
- Non-owned disposal site pollution liability,
- Natural resources damage,
- Low-level radioactive waste and material, Legionella and microbial matter,
- Asbestos and lead-based paint,
- Carbon capture and sequestration, and
- Underground storage tank(s).
An industrial facility that distinguishes its environmental practices and risk management as superior and selects an insurance provider with the requisite experience to understand and evaluate complex exposures will be best positioned to maintain a broad, cost-effective insurance program year-after-year, as new exposures emerge, regulations tighten and insurance market conditions fluctuate.
Environmental consciousness is again on the rise with events such as the Deepwater Horizon Oil Spill in the Gulf of Mexico. With a better understanding of the underwriting process, a corporation can help ensure that its environmental insurance is properly structured to protect its assets this year, and for years to come.
(Storm image courtesy Stefano Paltera, taken for the Solar Decathlon.)