Environmental risk: Markel says many firms are less protected than they think

Businesses often assume pollution incidents are covered under their existing liability programmes. 

KEY POINTS:
General liability has environmental gaps
Contamination risks often misunderstood
Regulatory clean-up obligations can be significant

According to Markel International’s Olivia Hogan, that assumption is leaving many organisations exposed to costs, obligations and operational disruption they never anticipated.

“Environmental risk is a core business exposure, where the gap between what businesses think they’re covered for and what they’re actually exposed to is quite big,” Hogan, senior environmental underwriter, told AIRMIC Today.

Environmental incidents, she said, often begin as operational problems: a leaking storage tank, a contaminated watercourse caused by an insured’s business or fire-water run-off flowing into neighbouring land after what began as an otherwise routine property fire.

They become business crises when companies discover their insurance programme does not respond in the way they expected.

A common misconception is that general liability policies will respond to pollution-related losses. In reality, Hogan said, many environmental exposures fall outside the scope of traditional liability cover.

General liability policies typically focus on sudden and accidental incidents and third-party claims. Environmental losses, however, often develop gradually and can trigger a range of costs that businesses do not always anticipate.

“The gap between what businesses think they’re covered for and what they’re actually exposed to is quite big.”

“The riskiest incidents are often not sudden events,” Hogan explained. Slow leaks from corrosion, ageing infrastructure or inadequate maintenance can continue undetected for years before contamination is identified.

By the time the problem surfaces, the source of the pollution might be less significant than the obligations that follow.

For many organisations, the biggest financial impact does not come from third-party claims. Instead, it comes from regulatory intervention.

“People often focus on third-party liability,” Hogan said. “But the regulatory clean-up obligations can be significant.”

As environmental regulation continues to evolve across the UK and Europe, regulators have adopted a tougher stance on environmental accountability, reinforcing the “polluter pays” principle that those responsible should bear the cost of remediation.

Companies can be required to investigate contamination, assess environmental damage and undertake extensive remediation of soil, groundwater or affected habitats. Those obligations can exist regardless of whether another party has suffered a direct loss.

As a result, she said, costs can escalate quickly. Environmental investigations often require specialist consultants, technical assessments, groundwater monitoring and ongoing reporting over extended periods. Operational disruption can add another layer of expense.

“Business interruption is another key exposure, so instances can lead to operational delays or site shutdowns while remediation is being carried out, which in turn results in loss of income for clients and businesses,” Hogan noted.

Environmental incidents are also attracting greater board-level attention. Investors, regulators and customers are demanding stronger environmental governance and greater transparency around environmental performance. At the same time, businesses face increasing scrutiny over how they identify, manage and respond to environmental risks.

Watch the full interview below.

Understanding the exposure

Another reason, she flagged, that organisations underestimate environmental exposure is they often define pollution too narrowly.

When businesses think about environmental claims, they tend to picture major chemical spills or industrial accidents. In reality, the range of materials capable of triggering regulatory action is far broader.

“Materials such as asbestos fibres or dust and odours, as well as everyday substances, can trigger regulatory action if they’re released incorrectly into the environment,” Hogan said.

As a result, environmental liability extends well beyond traditionally high-risk sectors.

Construction firms can encounter historic contamination during excavation work. Manufacturers face risks linked to fuels, solvents and legacy pollution. Waste and recycling businesses contend with run-off, emissions and leachate. Even organisations with relatively limited environmental footprints can find themselves exposed through routine operational activities.

For Hogan, the solution starts with understanding the exposure before an incident occurs.

That means carrying out comprehensive environmental risk assessments, identifying potential pollution sources and reviewing whether existing risk management and insurance arrangements align with the risks a business actually faces.

“Companies are still relying on general liability policies,” Hogan warned, “but these don’t respond to all the environmental exposures out there.”

She added: “Many exposures fall outside the intended scope of a general liability policy, which can leave businesses facing a lack of protection they thought they had.”

Olivia Hogan is senior environmental underwriter at Markel International. She can be contacted at: Olivia.hogan@markel.com

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