You don’t have to be an environmental scientist to understand environmental risk. It helps, but as risk management professionals, we are tasked with identifying a wide assortment of casualty and first party exposures for all types of businesses. I attempt to give some insight as to typical environmental exposures a risk advisor should be knowledgeable of and the process of identifying them so that you can communicate them to your clients.
“Environmental risk identification leads to the next steps: Environmental Risk Assessment and Evaluation. We will take up this topic in a subsequent article, but in short, the effort involves determining the magnitude of identified risks (the combination of likelihood and consequence) and making decisions about whether they are acceptable or whether they warrant treatment..”
In a prior article, I stated that 99% of business do not insure against environmental loss. The main reason is their mistaken belief that they either have no pollution exposure or are covered for the exposures they have on their commercial insurance policies.
This article explains just how wrong those assumptions can be. Every policyholder should know where they stand with respect to their pollution coverage and it’s the job of the risk management professional to identify gaps in coverage and communicate them to their clients.
“Traditional commercial insurance is just a bad fit for covering environmental loss. Relying on standard insurance to cover pollution loss is irresponsible risk management as the gaps in coverage are apparent. It is the role of the risk management professional to understand these gaps and communicate them to their clients.”
There are no national statistics for the number of environmental losses which occur each year, but consider that the State of New Jersey has had about 14,000 open environmental cases each year throughout the last 5 years and annually “closes” 2,000. That’s approximately 2,000 uninsured environmental losses in one state annually.
We need to do better in communicating environmental loss exposure and its solution.
“99% of businesses are uninsured for environmental loss. This is due to two facts:”
An analytic approach to defining and treating environmental liability risk inherent in a merger or acquisition will ultimately save time and costs. By effectively identifying risks and converting them into concrete costs of
either mitigation efforts or transfer, a company can be more accurately valued. Besides monetizing the risks, the cost-savings in avoiding litigation and increasing the success rate of any transaction reduces the friction costs of
conducting the deal.
Brownfields by their very definition involve properties with environmental liability risk:
A brownfield is a property, the expansion, redevelopment, or reuse of which may be complicated by the presence or potential presence of a hazardous substance, pollutant, or contaminant. USEPA
The definition is broad and includes properties that may have contamination. It is a generally accepted principle that reusing a brownfield is preferable to developing greenspace for a host of reasons, but the top four include:
“We understand that these are economic development ventures and that risk costs must be managed and defined to effectuate a financially successful project.”