FERMA Urges Members to Develop Environmental Liability Products

Warning that “European businesses face uninsurable environmental impairment risks,” the Federation of European Risk Management Associations (FERMA) called on insurers to be less “risk averse.” It urged members to “develop products that will allow businesses to protect themselves against new exposures to liability for environmental impairment that they may face from the end of April.”

FERMA represents over 5,000 individual members and a wide range of business sectors from manufacturing to financial services, charities and health organizations as well as local government organizations. Member associations are from the following countries: Belgium (BELRIM), Bulgaria (BRIMA), Denmark (DARIM), France (AMRAE), Germany (Bfv & DVS), Italy (ANRA), Netherlands (NARIM), Portugal (APOGERIS), Russia (RussRisk), Spain (AGERS), Sweden (SWERMA), Switzerland (SIRM) and United Kingdom (AIRMIC).

The organization’s call to action follows the publication by the European Insurance Committee (CEA) on Jan. 17 of its white paper on the insurability of environmental liability. “Members of the European Union must implement the new European Environmental Liability Directive into their national law by 30 April 2007,” said the bulletin. “The European Commission has, however, given the insurance industry until 2010 to develop financial mechanisms for responding to the liabilities.”

Pierre Sonigo, who represents FERMA on the CEA environmental expert working group, noted that this gap in timing would leave businesses facing considerable uncertainty with potentially large exposures that they cannot insure. It will depend on how the member countries implement the directive and whether they apply permitted exemptions. He indicated that existing insurance wordings are limited and will exclude the new liabilities, but the insurance industry seems reluctant to offer new products until all uncertainties arising from the directive are clarified.

“At the moment, insurers are risk averse when it comes to environmental liability,” Sonigo continued. “They should be more proactive in providing products now that the directive is being transposed into national law. Our companies need to take risk to survive; insurers should do so, too.”

FERMA’s report notes that “one of the principal issues is that the directive establishes the environment as a legal entity for the first time. National governments will have the responsibility to bring claims against polluters on behalf of the environment, and damages will not be in the form of financial payments, but as restitution of the environment to its state before the pollution occurred. Insurance policies as they are now would not respond to a claim of this type.”

The organization said it “believes not only that insurers should make cover available but that it should be at what buyers believe is a reasonable price. Sonigo pointed out that insurers are used to underwriting product liability risks. He does not believe the claims from environmental impairment will be more frequent or more severe.

FERMA also indicated that it “opposes any compulsory financial security schemes but instead wants to see a competitive insurance market for environmental risks within which pools could operate if they served a purpose.