Environmental Insurance – Coastal Facilities Istanbul – October 2010

1. Environmental Insurance – Coastal FacilitiesIstanbul – October 2010 Wayne Harrington UK & Ireland Manager – ACE Environmental Risk

2. Content • Pollution Cover & General Insurance; • Specialist Environmental Insurance; • Core Coverage; • Programme Design; • Typical Coverage for Coastal Risks; • Information Requirements; • Key Considerations; • Questions

3. Pollution Cover & General Insurance • Traditional property & liability policies are not designed to address environmental risks: • UK Property Insurance: • Coverage relies on “Insured Property” • LAND and WATER are not Insured Property; • Costs of remediating soils and groundwater therefore excluded; • Even where property is insured – policy still requires physical damage and a sudden & accidental event; • With no property loss, Business Interruption is also excluded; • If pollution migrates offsite – no cover applies.

4. Pollution Cover & General Insurance • Liability Insurance • No cover for damage to own property; • No cover for gradual pollution; • No cover for clean-up costs imposed by regulators; • Policies do not respond to Environmental Law – including the recent ELD: • Biodiversity damage is not addressed; • Prevention costs are uninsured; • Compensatory & complementary remediation costs are excluded.

5. Specialist Environmental Insurance • Specialist Environmental Policies • Include a broad menu of first and third-party coverage; • Designed to respond specifically to Environmental Law; • Based on Pollution Conditions – no dispute between gradual and sudden & accidental. • Pollution of air, land, water and biodiversity; • Cover for insured’s own properties, plus their activities at third-party locations; • Cover for historic and prospective environmental incidents; • Appetite for all sectors – except mining and nuclear facilities.

6. Core Coverage • Premises Pollution Coverage: • Covers pollution on, at, under or migrating from a Covered Location; • Covers remediation costs imposed on the insured by a Regulatory Authority; • Covers liability for third-party bodily injury, property damage and nuisance; • Covers interruption to the insured’s business – loss of profit, ICOW; • Covers costs & expenses – including investigation and legal defence;

7. Core Coverage • Covers transportation liability – movement of the insured’s products or waste by a third party; • Includes ‘emergency expenses’ or prevention costs incurred to prevent imminent threat of an environmental incident; • Covers liability for Biodiversity Damage – flora and fauna – protected species and habitats in the EU; • Includes a broad definition of Environment Law – specifically designed to respond thereto.

8. Programme Design • Standard programme parameters are applied: • Limits are for any one Pollution Condition and in the aggregate in the period of insurance. There are no unlimited policies available; • Premises policies are always on a claims-made and reported basis. No occurrence forms are available; • Limits do not attach ‘ground up,’ An excess per pollution condition is included; • Costs & expenses, including legal defence are within the limits provided, not in addition;

9. Typical Coverage for Coastal Risks • Cover for ‘NEW’ pollution conditions only – historic pollution impacts excluded; • No cover for any pollution conditions or circumstances known to the insured; • No cover for third-party business interruption / financial loss unless property they own, lease or control is damaged; • Strict risk management conditions will apply; • Annual policy periods; • Aggregate limits; • Claims-made policy trigger; • Self-insured retention applies - no ground-up coverage. The excess may differ based on land use and risk-specific criteria.

10. Information Requirements • Information focuses on the following: • Processes and materials handled; • Storage of contaminants; • Management of waste streams; • Site containment – drainage and firewater retention; • Environmental permits/licenses/consents; • Loss and compliance record; • Environmental risk management; • Surveys are not always required, but are more likely for many coastal facilities; • Survey costs are usually met by the insurer only when the risk will bind with them; • Incomplete information can result in coverage limitations or declinature.

11. Key Considerations • Compulsory nature of insurance – ability to decline; • The environmental standards will need to be clear and consistently applied; • Reinsurers will need absolute confidence in local underwriting and risk acceptance; • Gap between insurance and reinsurance; • Earthquake exclusion will be applied; • Examples of compulsory environmental insurance are limited –it’s easy to get it wrong; • Need to be realistic about: • What key risks need to be addressed; • What cover the insurance market can comfortably provide; • What role the State must play as ‘insurer of last resort.’

12. Questions