Firms more aware of need to insure against environmental risks

Policies protecting companies from such liabilities gaining popularity despite new status
Jessica Cheam, Straits Times 19 Apr 08;

ONE design defect was all it took for a manufacturer's toxic waste to leak into the water supply of a nearby community.

The firm - faced with legal action by many people affected by the pollution - had to pay millions of dollars in compensation.

It was, however, fortunate in one respect: A growing awareness of environmental issues meant it had taken out insurance against such accidents, so its costs were covered.

The demand for this type of liability insurance is growing despite its relatively new status in the Asia-Pacific, said environmental risk expert Karl Russek.

Mr Russek told The Straits Times that heightened awareness of climate change in the region had led to people demanding that governments address environmental issues.

With increased regulations, companies now face greater liabilities and are being held to account for the impact of their operations on the environment.

The cost can be devastating, especially for small and medium-sized enterprises (SMEs) that do not factor in such expenses, said Mr Russek.

This is why insurance policies protecting companies from liabilities arising from damages to the environment are being promoted aggressively in Singapore and elsewhere in the region, said Mr Russek, the senior vice-president of United States-based insurance group ACE Insurance.

ACE, which has a regional office in Singapore, introduced its environmental liability policies in the US a decade ago but had only recently brought them to the Asia-Pacific.

Mr Russek said 'several dozen' policies had already been sold in Singapore, and demand had been growing. Clients range from multinationals to SMEs and are not contained to heavy industries like petrochemicals.

Increasingly, he added, financial institutions and property developers are also seeking coverage from environment-related liabilities to protect their properties.

Some common claims seen in Asia include cleaning up pollution caused by chemicals released onto rivers and emissions into the air, repairing leaking underground tanks and compensating people who have sustained injuries from such incidents.

A medium-sized firm could get coverage starting at $10,000 (S$13,500) a year, depending on its business and location, according to Mr Russek. The limit for these policies can range from US$500,000 to US$50 million, depending on the policy.

'Many firms think they are covered by their general liability, but they often aren't. We offer coverage focused on unknown environmental conditions,' he said.

Another silver lining: Companies with good environmental systems in place enjoy lower premiums, encouraging companies to take responsibility for their operations.

'But the main challenge is to educate the business community and make them understand the full extent of their company's environmental risks,' said Mr Russek.