Clean-up in responsibility

Regional brokers have an opportunity to offer real value to their clients in the light of pending environmental legislation which will create increased liabilities for companies of all sizes in the EU.

Brokers and clients alike may be thinking that the EU's environmental liability directive has little effect on them, so why the rush to do something now? But this is where brokers can take the lead.

The directive, and its potential impact on SMEs, provides regional brokers with competitive advantages - particularly if they become well-versed in the issues.

Also, there is a significant lack of awareness and understanding of the directive and its implications, particularly among SME businesses.

Environmental liability exposure is now something all brokers need to be aware of because it is their SME customers who will be at risk from the pending regulatory changes.

This is why now is the right time to make clients aware of the risks they may face and to take action to limit their exposure ahead of legislation in 2007, as member states have until 30 April 2007 to incorporate the directive's provisions into national law.

So what are the specific risks SMEs face? Broadly speaking, any company with property assets has environmental risk exposure.

It is a misconception to think only polluting industries have environmental exposure. The fact is that while exposure to environmental risk can be due to ongoing operations, historic activities dating back a number of years can also have a significant impact.

What lies beneath
There is virtually no way to be certain of what took place on premises in the past. This is why any organisation that owns or rents land is at risk.

This concept of 'what lies beneath' is the concern. A client buying a new property today will, invariably, have to produce reports and surveys on the land and the surrounding site to meet their bank or lender's diligence requirements. In the past this was not always carried out, which is why clients with existing property may be at risk.

Whether the property is a shopping centre or a small commercial unit, it may be difficult to determine what was on the site before. The client could be sitting on what was once a gas plant or a refuse tip. As the current owner, they may have liabilities which long pre-date their ownership. All it would take is a letter from the council saying a site is being investigated as a possible contaminated site under Part 11A of the Environment Protection Act and the potential is there for the owner or lessee of the site to face clean-up liability or exposure to third party claims from adjacent property owners.

The intangible nature of this risk, and the fact that it could have nothing to do with how responsibly the client runs their business - or even what that business is - could cause them to fail to take the issue seriously. Complacency is the first hurdle for brokers.

Marketplace opportunities
Historically, environmental risk insurance was seen as esoteric and complicated. Many brokers shied away from it, seeing it as complex and expensive. Today, the key message for brokers is that neither of these things is true - and this is despite some in the industry's best attempts to downplay the market.

Regional brokers should take another look at the products available. Cover for claims resulting from gradual, sudden or accidental pollution stemming from ownership or control and/or operation of a premise are now much easier to understand. The cover has also broadened significantly.

Changes in underwriting mean insurers may not require extensive and intrusive engineering investigations to assess the levels of risk. It should be a simple matter of the broker asking the insurer what they know about the risk on a particular site and how they would determine the client's exposure.

It is true that there is uncertainty regarding the implementation of environmental liability legislation. While individual member states are formulating their responses to the EU directive, clients may argue, why hurry and why do something before you need to?

The answer is two-fold and simple. We know the liability landscape is going to broaden and be significantly wider than has been the case. And the insurance cover available now is broadly written to incorporate many of the new concepts by the EU directive. Brokers would do well to impress these facts on clients and encourage them to consider putting cover in place now, so when the new liability directive does roll in, they can be confident they are covered by their policy.

The reality is that there is a gap in the current casualty coverage in respect of these new liabilities. Insurance products in the marketplace present a very good way for brokers to put in place a solid defence and protect their clients. The advice to brokers who looked at the product a few years ago, is to take a fresh look. It is a very different market now.

Not withstanding the responsibility on the part of the broker to make sure their clients are fully informed of the risks and ensure they are covered for the range of eventualities, there is business to be made. It is not just the playground of the big national brokers now - it's time for the regional broker to compete. IT

' Karl Russek is senior vice president of ACE Environmental Risk

Environmental liability directive
The EU supports the principle that the polluter pays for the consequences of his pollution. This approach was enshrined in the directive on environmental liability agreed in 2002. The environmental liability directive came into force in April 2004. It is aimed at preventing environmental damage by forcing industrial polluters ("operators") to pay prevention and remediation costs.

Operators carrying out "hazardous" activities will be held strictly liable (no need to show fault or negligence) for preventing or restoring any damage caused by those activities to land, water and protected habitats and species. In addition, operators carrying out other, less harmful, activities will be held liable when damage to protected habitats and species has been caused by their fault or negligence.

Where environmental damage occurs, the relevant national agency or government will require the operator to take steps to deal with the problem. If the operator cannot do this, for example because they are no longer trading, It will be open to national governments to establish common funds, financial guarantees or other methods of ensuring that pollution is cleared up if the original polluter cannot pay.