Magazine article Risk Management

Trends in Superfund Reform

Magazine article Risk Management

Trends in Superfund Reform

Article excerpt

ENVIRONMENTAL LIABILITIES are among the most formidable exposures facing businesses today. Whether their companies' exposures stem from the Comprehensive I Environmental Response, Compensation, and Liability Act (CERCLA) - better known as Superfund - the Resource Compensation and Recovery Act (RCRA) or any other of a wide range of environmental laws, risk managers must implement insurance and risk financing solutions that will cover their exposures, said Dean Jeffery Telego, president of Risk Management Technologies Inc. (RTM), an environmental risk management consulting firm based in Alexandria, Virginia.

Speaking at RTM's recent conference on the pollution insurance marketplace and new developments in environmental risk and claims management in New York, Mr. Telego reported that the changing nature of the environmental field has prompted insurers to develop a wide range of new products. "The current market conditions have forced the expansion of new niche markets," he said, adding that this expansion has resulted from Superfund's liability scheme; RCRA's financial assurance and corrective action requirements; and various state and local environmental laws, regulations and ordinances. Other forces are the continuing soft market and an increase in the number of insurers writing pollution policies, said Mr. Telego. "These new policies and policy form enhancements include endorsements and financial mechanisms that allow for multi-year contracts on environmental risks such as for voluntary cleanups of contaminated real estate property, and subsequent transfer of that property to environmental impairment liability coverage."

Risk managers will also notice a growth in customized coverages for landfills, underground storage tanks, asbestos, solvents, recyclers, lead paint abatement contractors and policies that cover buyers, sellers and lenders of commercial and industrial real estate. "No longer are we seeing off-the-shelf products," said Mr. Telego. "Products are becoming more customized, and the

existing environmental liability schemes will drive niche markets to expand further and create more flexibility in policy coverages and pricing structures."

Another key development is the increase in use of finite risk products and risk funding for environmental exposures, Mr. Telego added. "There is an accelerated movement in the insurance marketplace to create integrated environmental insurance products that encompass a combination of risk sharing and risk transfer that allows for off-balance sheet accounting, budget stabilization, and investment income and liability protection," he explained.

While these new developments in environmental policies have created more coverage options, many companies are also taking a more proactive approach to their environmental risks. "There's been a move toward voluntary cleanup of contaminated commercial and industrial properties, as well as a move toward pollution prevention," said Mr. Telego. "And with the increase in regulations and the associated liabilities, corporate risk managers will be playing a greater role in environmental affairs, overseeing environmental issues as part of risk prevention and risk control." Mr. Telego also predicted that risk managers will spend more time overseeing the environmental auditing of their companies' operations to identify any potential pollution loss exposures, as well as targeting ways to minimize pollution risks. Other risk control steps include the creation of crisis management programs, as well as risk communications strategies to deruse any concerns the local community may have about the company's activities, he added.

Superfund's Litigation Nightmare

BUT WHILE RISK MANAGERS can use risk control strategies and the new, enhanced insurance coverages for their environmental exposures, complying with regulations still represents a difficult challenge. And of all existing environmental legislation, perhaps the most onerous for U. …

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