The environmental insurance market has long been oversaturated, yet many businesses still fail to secure coverage despite an increasing need for it.
Industry experts point to a paradox: the supply of environmental insurance has remained high for decades, while demand continues to grow due to evolving risks. However, uptake remains low, according to David Dybdahl (pictured), founder of American Risk Management Resources Network, now part of Bridge Specialty Group.
In fact, approximately 80% of companies do not purchase environmental insurance, a figure that has remained consistent since 2018.
One key factor is the complexity of the coverage itself. Unlike standardized insurance products, environmental policies require specialized knowledge, and gaps in the distribution process may be preventing businesses from understanding or accessing the right protection.
The complexity isn’t just in the policies. Standard liability insurance is filled with exclusions that have widened over time.
“More underwriters keep coming up with new ways to exclude contamination – which is the operative word in a pollution exclusion – and then look at specific things excluded, like lead or asbestos, in addition to pollution exclusions, as the exclusions expanded,” Dybdahl said.
As science advances, insurers have used improved contamination detection as a reason to introduce even more exclusions, Dybdahl said. The latest target? PFAs – so-called “forever chemicals” linked to cancer.
“Science can detect things in smaller models, which we just started to see on the radar screen with the exclusions for PFAs, a man-made chemical designed specifically to not oxidize so it doesn't break down,” Dybdahl said. “And when you start looking for PFAs in parts per trillion instead of parts per million, you find them all over, and then it's linked to certain forms of cancer, and then there's a whole set of exclusions.”
Despite this, businesses still assume their general liability policies protect them.
“Pollution exclusions are the most litigated words in the history of insurance,” Dybdahl said. “Lawyers and judges can't figure them out.”
That same confusion extends to brokers, many of whom have no formal training in environmental insurance.
“There aren't a lot of educational venues for insurance producers to actually learn,” Dybdahl said. “The Risk and Insurance Alliance has two classes, and the Society of Environmental Insurance Professionals has a boot camp that's two-and-a-half days long, which really covers the material, but people don't seek out that knowledge.”
That lack of education leaves businesses dangerously exposed – and that exposure is about to grow. PFAs litigation is accelerating, with over 6,400 PFAS-related lawsuits filed in federal court between July 2005 and March 2022.
“PFAs has the potential to be the next asbestos because it is widespread,” Dybdahl said. “Currently, litigation, according to the press, is focused on the manufacturers of PFAs. But then what happened with asbestos was that the first lawsuits were against manufacturers, which then went to the companies that included asbestos in their products. Then, it went to the people who used asbestos-containing products, and that took decades. So, if PFAs go that direction – and the situation has all the elements to do so – that could be a major loss exposure.”
Businesses without pollution coverage could be left to handle massive lawsuits on their own. What happened with asbestos was the businesses that had policies before exclusions kicked in were protected, but Dybdahl makes it clear – almost nobody did.
“Policies in place went to limits when the lawsuit started, but very few people actually had the policies in place,” he said.
Regulations add another layer of uncertainty, but not in the way most people think. Dybdahl isn’t worried about stricter environmental laws – he’s more concerned about a breakdown in enforcement.
“I am concerned that there may be a sea change in regulatory procedures and enforcement directly related to lack of manpower,” he said. “How will the permits get done? The permitting that's designed to protect wetlands or air quality?”
Many assume weaker enforcement means lower risk, but Dybdahl sees the opposite. If government agencies don’t enforce environmental laws, private citizens can – and the financial fallout for businesses could be severe.
“Interestingly, that may increase the number of third-party lawsuits,” he said. “There is, in the US, the ability for citizens to do a citizens' action against a company that's not in compliance with the regulations, and one of the criteria is the regulators aren't doing anything. Then, the citizens can bring a lawsuit and pay for lawyers – and if they win their lawsuit to enforce the regulations, the lawyers get paid, and usually, there's a big settlement for the citizens.”
Yet businesses still seem unaware of the risk. They assume environmental insurance is only for hazardous waste sites and chemical plants. Dybdahl has seen this mistake play out repeatedly, with costly consequences.
“The most common mistake made on environmental loss exposures is underestimating the effects of the pollution exclusion,” he said. “So, the pollution exclusion divides pollutants with a series of acids, alkalis, chemicals and waste materials. But the keywords for a pollution exclusion are ‘contaminant’ or ‘irritant.’ The other words are just descriptors of what an irritant or contaminant might be.
“We actually had a customer that contaminated a whole elevator, a grain elevator, with corn in it because a worker took a bag of seed corn, which is colored very brightly, and that color also has a pesticide in it,” he said. “And they just took a bag of seed corn, put it in with a vat of shell corn, and took it off to the elevator. And then somebody noticed one of those badly decorative seed corn things, and then [the customer] had to pay for the whole elevator.”
According to Dybdahl, the industry needs a new approach to communicating this coverage.
“I'd like to see the word 'pollution insurance' taken out of environmental insurance policies because as soon as you say pollution insurance to a customer, they're thinking landfills all the way – landfills, the people that work on landfills, or maybe chemical companies,” he said.
That perception is entirely out of step with actual claims data.
“The number-one loss exposure in the environmental insurance business, last time I had statistics, five years ago, was mold. Mold was the number one source of claims payout. It wasn't chemical companies. It wasn't tipped-over hazardous waste trucks. [It was] mold,” he said.
The biggest risks to businesses aren’t what they assume – they’re the threats companies don’t even consider until disaster strikes. For brokers, the message is clear: stop assuming the underwriter has all the answers.
“If you don't have an environmental resource group in your company – most don't – then seek out a wholesaler with specialized experience,” Dybdahl said. “Your underwriter is likely not the best resource because they have a limited view and only know their company.”
Businesses that don’t seek out specialists are leaving themselves open to massive liabilities, he said.
Environmental insurance isn’t a niche product. It’s not just for landfills. It’s not just for chemical plants. Exclusions are growing, lawsuits are multiplying, brokers are unprepared, and businesses are exposed. The coverage exists – but as Dybdahl has seen over and over again, almost no one has it when they need it.
