Environmental risk is often seen as a “black swan event”. The risk is infrequent but when a crisis occurs it can be catastrophic.
Communicating environmental liability to clients can be difficult. Many choose to put their faith in public liability insurance and overlook environmental liability. This is due to a widespread lack of understanding of the complexities of environmental law.
Stephen Sykes, solicitor managing director of Ashfield Risk Transfer Solutions, told Insurance Business how brokers can “bust the myths” around environmental liability and protect clients against environmental risk. The answer, he says, lies in claims data.
“To manage environmental risk, you need to measure it. Make comparisons with companies that are similar to yours and study the losses they have suffered. You need to ask if you can sustain those kinds of losses. The challenge is that some of the claims data is hard to come by, so the broker will have to work hard to access it,” said Sykes.
“You can get a handle on some of the losses that are happening in the UK and further afield by following the legal press, case law and reports as well as the information the insurers provide. There’s no one-stop-shop for this - brokers have got to work at it. Claims data, although it’s hard to get, is worth searching for. It is probably the most powerful information that can be given to a client.”
Using claims data to enlighten clients about environmental risk must be done with tact, according to Sykes. The trick is “not to bamboozle” or scaremonger clients but rather to educate them through realistic and comparable loss scenarios.
Another key responsibility of the broker is to dig into the detail of contractual provisions on behalf of the client. Environmental risk sits quietly beside the buying and selling of businesses in the commercial world. Contractual clauses reallocate risk between buyers and sellers - and brokers must be aware of this.
“The broker has got to dig into the detail of those transactions to see where the risk is being passed from A to B, figure out where it falls and sit down with the client to see if the risk can be laid off,” Sykes commented. “The contract crystallises risk so the broker needs to be on top of any contractual deals the client is doing.”
This may sound simple in theory, but environmental laws are notoriously complex. Successful brokerages in the environmental insurance market may require collaboration with legal professionals.
“Environmental law is different throughout the UK … and Brexit is only going to change things further,” Sykes pointed out. “Brokers will need to keep an eye on that.”
Don’t miss out on the chance to hear more from Stephen Sykes and a host of other leading industry figures at the Environmental Liability and Risk Masterclass 2017 on Thursday, June 29, at the Grange City Hotel, London. The event will include presentations and panel discussions on a range of topics from names including the likes of Chubb, Aspen Insurance, Willis Towers Watson, Marsh, and more.
