Insurers favour market-driven solutions for environmental liability risks

The IUA’s Non-Marine Environmental Committee said that it would be too difficult to assess a suitable minimum level of security that companies would be required to hold against potential environmental damage. A compulsory requirement could also persuade firms to only buy the minimum level of security to meet their statutory obligations, rather than a level which reflects their actual exposure.

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 to show that they will be in a position to cover losses caused by their activities.”

The IUA’s Committee also said that more work needs to be done on collecting environmental liability claims data and educating companies about their potential exposures. “The introduction of the EU’s Environmental Liability Directive has clarified responsibilities and enforced the ‘polluter pays’ principle,” said Mr Jones. “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.”

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He added: “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.”

Mr Jones said that the IUA would welcome a registration system to record information on the cost and frequency of claims.

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