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The time has come for insurance brokers to realize that we each have a very important role to play in creating a sustainable environment.
Risk surveys can be designed to prompt the right questions to identify pollution risk. But what are we doing as an insurance community to protect our environment through the issuance of correct insurance?
I find that as soon environmental insurance is raised in most discussions, and without even costing the insurance, the common response is, “Oh no, that’s just too expensive.”
The cost of environmental insurance is not the stumbling block. It’s the cost of environmental security – the risk management procedures that need to be deployed to meet the “material” compliance requirements of the insurer.
For example, the Gulf of Mexico oil crisis is considered the worst case of man-made pollution ever. Many have argued that the spill could have been avoided if a robust enough “blow out preventer” had been on hand. An environmental insurance policy may have dictated this among its essential risk management criteria.
So let’s not allow the cost of the unexpected to be confused with the cost of insurance.
Imagine if environmental liability insurance was compulsory. It would not only be affordable, but increase awareness to risk and deployment of material strategies.
For example, it is illegal to drive a car that is not insured for injury to third parties. And yet, the cost of insurance is fair and reasonable because the insurance is compulsory. Car manufacturers continue to improve safety features as result. Is our environment worth the risk?
On the subject of “risk,” corporate social responsibility is challenged. Sometimes the corporate mind has difficulty perceiving the difference between those risks that we are certain can occur and those that we imagine would never happen.
For example, we were certain an earthquake reaching up to a magnitude of 7.9 on the Richter magnitude scale could happen in Japan, which built its nuclear reactors to withstand such a quake. But we could never imagine that a 2011 Japanese earthquake would exceed all previous known seismic recordings. This in turn resulted in a massive tsunami that flooded critical generators used to cool atomic reactors, released toxic gas into the atmosphere; and contaminated groundwater and ocean water.
“Certainty versus uncertainty,” translated into insurance terminology, is: “Foreseen versus Fortuitous.”
Fortuitous events are insurable. The robust methods that insurers apply to calculate a risk premium are logical. Moreover, simply identifying the two “effs” can encourage more transparency in commercial contracts, and create demarcation between the commercial disputes and those that are fortuitous.
Let’s summarize the important points thus far:
• Foreseen vs. Fortuitous (the two effs distinguish between certainty and uncertainty);
• Self-insurance invites reckless behaviour (imagine if we drove around in cars without any insurance in place to cover injury to the public);
• Risk Assessment may not identify environmental risk (the kind of risk associated with total environmental degradation, beyond which advisers have not foreseen nor can they afford to self-insure); and
• Environmental insurance is commonly available (fortuitous events are insurable subject to an environmental security review and risk recommendation).
Is our environment (built or otherwise) worth the risk of being uninsured?
As insurance brokers, we each share an obligation to examine the contribution we make to determine what we collectively value as a society. How is this connection made? Climate change has resulted in“100-year”events occurring throughout the world, including massive floods, tsunamis, tornados, hurricanes, and earthquakes. Plus, our need for resources has resulted in a significant degradation of the environment. If insured, how would the story change?
The intrinsic values of insurance can be championed effectively by insurance brokers who have arguably the greatest significance in the chain of true corporate social responsibility. The ability to address environmental risk, no matter how insignificant it may appear to be, is the intrinsic role that insurance brokers must learn to play if we are to take up the ranks as contributors to enhancing environmental security.
Plenty of professionals out there call themselves environmental experts. But how many of them have a licence to advise and insure pollution risks? For example, environmental risk managers identify ‘foreseen’ risks and must assume the ‘fortuitous’ is covered by the (environmental) insurance broker. The same may also apply to an environmental accountant whose practice is to account for the contributing factors that result in an existing or potential impact to the environment.
Through correct insurance, we can educate our community and environmental advisers of the importance to respect the laws governing the protection and sustainability of our environment, simply by issuing policies that will respond to those laws.
Insurance advisers at all levels have a very important role to play. It is essential for the profession to become educated about environmental risks associated with the many and varied professions that insurance brokers come across.
Brokers have a robust view of the environmental risk sector. We confirm that such cover is available and suggest that risk managers learn to distinguish between the “effs,” so that their clients are intimately aware of the fortuitous risks associated with environmental liability that can be insured. In order to arrange environmental insurance, a key factor is to recognise that insurers need to understand the risks too.
Our insurance sector is in need of a whole new breed of environmental insurance advisers who are adept in interpreting the fortuitous components of potential environmental liability.
Anthony Saunders is an Insurance Broker, Risk Transfer and Environmental Insurance Specialist, EnviroSure. This is an edited and abbreviated version of the original publication of his text.
