Evolving environmental regulations will add complexity to underwriting and pricing site specific environmental liability insurance.
The shifting policy landscape – ranging from Biden’s stricter environmental measures to Trump’s recent push for deregulation – creates uncertainty, making it more challenging for underwriters to accurately assess risk, according to Tanya Andolsen (pictured), president of Argosy Risk Specialists.
“It’s been a constant back-and-forth; we went from Trump to Biden and now back to Trump, and each administration has vastly different views,” Andolsen said. “The new EPA head, Lee Zeldin, has already signaled a shift – saying he doesn’t want to ‘suffocate the economy,’ which suggests a plan to roll back regulations in favor of business growth and increased energy production.”
When considering site pollution liability coverage, underwriters had been taking into account a stricter regulatory environment and factored that into their risk assessments. But with the market now shifting in the opposite direction, loosened regulations may create more ambiguity around legal standards for environmental protection – making it harder to define potential liabilities. This uncertainty complicates accurate risk evaluation and pricing.
“We’re also seeing cutbacks at the EPA, including cancellation of grants, axed programs and staff elimination,” Andolsen said. “I would assume that as a result it will be harder to monitor environmental cleanups. Without the manpower, oversight and enforcement may be significantly reduced.”
Weakened enforcement and insufficient oversight could ultimately lead to larger losses for insurers. As a result, insurers are likely to place greater emphasis on internal risk management by policyholders and look to loss control services to help mitigate exposures.
“It will be interesting to see how that impacts the environmental insurance market over the next 12 to 24 months – especially in areas where active remediation projects are underway,” Andolsen said.
She also noted that underwriting appetite had already declined over the past two years.
“Many carriers were already pulling back coverage in high-risk sectors such as fossil fuel extraction, chemical manufacturing and drilling operations,” she said. “PFAs – so-called ‘forever chemicals’ – are also a continuing concern. Insurers are approaching these risks with caution, largely because there’s still a lot of uncertainty around what future regulations will demand.”
Regulatory uncertainty is expected to persist, and as a result, insurers will likely continue adjusting policy terms and conditions to limit their exposure to perceived risks. In addition to tightening coverage and increasing deductibles, brokers and policyholders are also facing a more pressing challenge: shrinking market capacity.
“What I’m seeing with many of my renewals is early notice from carriers that capacity is being reduced,” Andolsen said. “Where a carrier may have previously offered $10 million or $15 million in limits, they’re now capping coverage at $5 million.”
This shift is pushing brokers to begin the placement process earlier and, in many cases, to stack limits by involving multiple carriers.
“Carriers just don’t want to put up as high of a limit,” Andolsen said. “And when you need to bring in multiple insurers to build that capacity, it often drives the overall rate higher.”
The ability to secure coverage is also being impacted by new exclusions.
“Some exclusions are now mandatory across the board from every carrier,” Andolsen said. “It’s crucial to inform the insured early in the process, so they have time to address any concerns from a risk management perspective outside of insurance. For example, with PFAs, if the exposure comes from having those chemicals in fire suppression systems, it may be a wise move to switch to a system that no longer uses them.”
Focusing on site pollution policies, Andolsen anticipated a continued tightening of terms.
“I think we’ll see higher deductible requirements for certain types of exposure, likely with a minimum retention needed to even consider offering coverage,” Andolsen said. “What’s happening is there’s a higher frequency of catastrophic events and increased claims activity. In the past, environmental claims were seen as high severity but low frequency. Now, we’re dealing with both high severity and high frequency.”
Policyholders should continue to expect shorter policy terms moving forward.
“A decade ago, 10-year policies were common. Five years ago, five-year terms were easy to secure,” she said. “Now, many carriers limit policies to three years, or even just one year in some cases. This shift stems from growing uncertainty – insurers want the flexibility to reassess risks annually, accounting for changes in regulations, climate, and overall exposure. Essentially, they want to re-underwrite coverage more frequently to ensure it still makes sense for them.”
For brokers, shorter policy terms mean more frequent work, and beyond the financial aspect, there’s also a relationship benefit.
“There are two perspectives; with a 10-year policy, you earn revenue once and don’t see it again for a decade (if the policy renews). More frequent renewals do increase the workload, but they also create a steadier, more consistent revenue stream,” Andolsen said.
