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Conference on the Implementation of Coastal Facilities Sea Pollution Liability Insurance in the EU and Turkey

Conference on the Implementation of Coastal Facilities Sea Pollution Liability Insurance in the EU and Turkey. Carmen Bell, CEA Policy Advisor Non-life Insurance Istanbul, 19 October 2010. About the CEA. 33 national member associations: 27 EU Member States + 6 non-EU markets

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Conference on the Implementation of Coastal Facilities Sea Pollution Liability Insurance in the EU and Turkey

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  1. Conference on the Implementation of Coastal Facilities Sea Pollution Liability Insurance in the EU and Turkey Carmen Bell, CEA Policy Advisor Non-life Insurance Istanbul, 19 October 2010

  2. About the CEA 33 national member associations: 27 EU Member States + 6 non-EU markets Croatia, Switzerland, Iceland, Norway, Turkey, Liechtenstein 2 observers Russia, Ukraine

  3. CEA Environmental Taskforce • Cooperation with the Commission • Education and promotion of best practices (publications and workshops) CEA White Paper on the Insurability of Environmental Liability (2007) The Environmental Liability Directive: Enhancing Sustainable Insurance Solutions (2008)

  4. Environmental Liability Directive EC ELD Article 14 Report Challenges for Insurance EU Action on Oil Pollution 2013/14 EC ELD Review 1 1 2 3 4 5 Source CEA

  5. Environmental Liability Directive DIRECTIVE 2004/35/CE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 21 April 2004 on environmental liability with regard to the prevention and remedying of environmental damage

  6. ELD Stakeholders Member State Authorities European Institutions Council of Ministers Environmental agencies European Parliament Ministries of environment European Commission DG Environment National insurance associations Insurance industry stakeholders Other stakeholders Insurance companies Alternative financial security providers Risk managers (eg FERMA) Brokers Industry (operators) NGO’s

  7. Objective of the ELD ELD, Paragraph 3 European Commission (EC) “…establishes a framework based on the ‘polluter pays’ principle, according to which the polluter pays when environmental damage occurs. This principle is already set out in the Treaty establishing the European Community” (Article 174(2) TEC, since amended by Article 143 Lisbon Treaty). “…namely to establish a common framework for the prevention and remedying of environmental damage at a reasonable cost to society”. http://ec.europa.eu/environment/legal/liability/index.htm

  8. Basic Principles of the ELD • EC report on ELD effectiveness and related financial security issues

  9. Basic Principles of the ELD • Operators are financially liable for remediation of environmental damage, orimminent threat of such damage, that is caused by their activities. • Goal is to encourage measures and practices that minimise risks of environmental damage so that exposure to financial liabilities is reduced.

  10. Basic Principles of the ELD • “Competent Authorities”, Article 11 • Designated by Member States • File administrative ELD claims • Assess significance of damage • Determine preventive and remedial measures • Require operators to supply information and carry out measures

  11. Basic Principles of the ELD “Environmental Damage”, Article 2 Protected habitats/species (biodiversity) Water (groundwater and surfacewater) Land damage (soil) Natural resources

  12. Basic Principles of the ELD Remedial Measures (Annex II) Primary remediation Complementary remediation Compensatory remediation Interim losses Preventive measures

  13. Two Types of Liability Basic Principles of the ELD Strict Liability for… potentially hazardous activities as defined in Annex III (ie waste management, genetically-modified organisms (GMOs)) • Fault-based liability for… • all other professional activities

  14. Annex III Activities These activities include, among others: industrial and agricultural activities requiring permits under the 1996 Integrated Pollution Prevention and Control Directive; waste management operations; the release of pollutants into water or into the air; the production, storage, use and release of dangerous chemicals, and the transport, use and release of genetically modified organisms (GMOs).

  15. Annex III Activities What about martime safety? Duplication with international liability legislation that is effective in the EU (for example on nuclear activities and maritime safety) has been avoided, and so have overlaps with the civil liability regimes that exist in Member States. The latter means that so-called "traditional damage" - personal injury and damage to goods and property - even if it is caused by "risky and potentially risky" activities covered by the Environmental Liability Directive, will be dealt with under national civil liability legislation. The Environmental Liability Directive only deals with damage to the wider environment.* *EC Memo/07/157, 27 April 2007, Questions and Answers – Environmental Liability Directive

  16. Defences to liability Permit Defence (Article 8, 4(a)) Member States may allow the operator not to bear the cost of remedial actions taken pursuant to this Directive where he demonstrates that he was not at fault or negligent and that the environmental damage was caused by: (a) an emission or event expressly authorised by, and fully in accordance with the conditions of, an authorisation given under applicable national laws and regulations.

  17. Defences to liability State of the Art Defence (Article 8, 4(b)) Member States may allow the operator not to bear the cost of remedial actions taken pursuant to this Directive where he demonstrates that he was not at fault or negligent and that the environmental damage was caused by : (b) an emission or activity or any manner of using a product in the course of an activity which the operator demonstrates was not considered likely to cause environmental damage according to the state of scientific and technical knowledge at the time when the emission was released or the activity took place

  18. Environmental Liability Directive EC ELD Article 14 Report Challenges for Insurance EU Action on Oil Pollution 2013/14 EC ELD Review 1 1 2 2 3 4 5 Source CEA

  19. EC ELD Article 14 Report • On 12 October 2010, the EC adopted a report pursuant to Article 14 of the ELD, which discussed the following: • effectiveness of the ELD in terms of actual remediation of environmental damages and availability at reasonable costs and on conditions of insurance and other types of financial security for the activities covered by Annex III. • In relation to financial security, the report examined: • a gradual approach; • a ceiling for the financial guarantee; and • the exclusion of low-risk activities.

  20. ELD Transposition Transposition deadline: 30 April 2007 As of 7 June 2010the ELD has been transposed completely by all 27 EU Member Stateswith one exception (Salzburg, Austria)

  21. ELD Transposition Scope for Strict Liability For the scope of activities covered by strict liability, several Member States exempted the spreading of sewage sludge from waste management operations (Bulgaria, France, Latvia,Malta, Portugal, Romania, Slovakia, Slovenia and UK). A number of Member States included further activities not mentioned in Annex III in the scope of strict liability(Belgium, Denmark, Finland, Greece, Hungary, Latvia, Lithuania, Netherlands and Sweden). As reported by EC, 12 October 2010

  22. Liability Schemes ELD Transposition Strict liability beyond Annex III-activities (enlarged scope): Comprehensive: Denmark, Finland (for damage to land and water) Hungary, Lithuania, Sweden Specific (by activities): Belgium (varies by region/federal state), Latvia Optional extension: Greece, Netherlands Scope of strict liability identical with ELD: Austria, Bulgaria, Cyprus, Czech Republic, Estonia, France, Ireland, Italy, Malta, Poland, Romania, Slovakia, Slovenia, Spain, United Kingdom As reported by EC, 12 October 2010

  23. Defences ELD Transposition Both permit and state of the art defence incorporated:Belgium (regions), Cyprus, Czech Republic, Estonia (except GMOs), Greece, Italy, Latvia (except GMOs), Malta, Portugal, Slovakia, Spain, United Kingdom (except GMOs in Scotland, Wales) Both permit and state of the art defence not applicable: Austria, Belgium (federal level), Bulgaria, Germany, Hungary, Ireland (change planned), Netherlands (applicable only after check of reason), Poland, Romania, Slovenia State of the art defence only: France Permit defence only: Denmark, Finland, Lithuania Mitigation ground:Sweden As reported by EC, 10 October 2010

  24. Multi-party allocation ELD Transposition Joint and several liability:Austria, Belgium, Cyprus, Czech Republic, Denmark, Germany, Greece, Hungary, Ireland, Italy, Latvia, Netherlands, Portugal, Romania, Spain, Sweden, United Kingdom Proportional liability:Denmark, Finland, France, Slovakia, Slovenia As reported by EC, 12 October 2010

  25. EC ELD Article 14 Report Firstly, with respect to the effectiveness of the ELD, the report holds that there is “insufficient data to draw reliable conclusions on the effectiveness of the Directive in terms of actual remediation of environmental damage” (p 5).  ELD Effectiveness?

  26. EC ELD Article 14 Report Financial Security? Secondly, with respect to mandatory financial security the report notes that “it is premature for the Commission to propose mandatory financial security at EU level” (p 8). The report states divergent implementation rules, the lack of mandatory approaches present for evaluation and the still growing market of financial security products as the basis for this conclusion. The report further notes that a “lack of practical experience in the application of the ELD” signifies that “there is not sufficient justification at the present time for introducing a harmonised system of mandatory financial security” (p 10).

  27. Mandatory vs. voluntary financial security ELD Transposition Mandatory financial security scheme*: Portugal (01/2010), Spain (04/2010), Greece (05/2010), Bulgaria (01/2011), Hungary (01/2011), Slovakia (07/2012), Czech Republic (01/2013), Romania (date still to be determined) • All above countries facilitate the implementation of mandatory financial security with a gradual approach, financial guarantee ceilings and/or the exclusion of low-risk activities. • However, mandatory financial security is delayed in all three countries where it was supposed to come into effect in 2010 (Portugal, Spain, Greece) because essential provisions are not yet in place. • Remaining EU States rely upon a voluntary financial security scheme. *Note that dates may be subject to change

  28. Environmental Liability Directive EC ELD Article 14 Report Challenges for Insurance EU Action on Oil Pollution 2013/14 EC ELD Review 1 1 2 3 4 5 Source CEA

  29. Challenges for Insurance

  30. Challenges for Insurance Operator demand for environmental liability insurance is currently still low. Why? • Economic crisis - operators may feel pressured to tighten their budgets and avoid “unnecessary” expenses • Lack of claims – Member State authorities may still be raising claims under preexisting environmental laws • Lack of communication - Brokers may not want to push the ELD polices with which they are not familiar • Lack of familiarity - Risk managers do not yet appreciate the strict liability regime implemented under the ELD

  31. Challenges for Insurance Need to prevent gaps and overlaps between insurances

  32. CEA Position A voluntary financial security scheme is best for ELD • Effectiveness of insurance products relies upon sustainability and stability across the EU: • Need frequency +cost of environmental accidents • Need to match concepts and criteria for endurance • Environmental liability insurance options are increasingly available, but: • product development still in process; • varying levels of liability cultures in EU States; • low operator demand for ELD cover; • transposition and execution phases differ.

  33. CEA Position – Voluntary Financial Security Experience with traditional damage New skills in response to ELD claims

  34. Market Development • Austria • Finalising a non-binding model • Finland • 3 major insurers now offering ELD products • Interest in products also growing • France • Statistical tool used to measure development of ELD claims • Germany • Up to 70% of operators have an Environmental Damage Insurance based on nonbinding model • Italy • IT Pool supporting ELD cover

  35. Market Development • Spain • ES Pool and 5 multinational insurers offer ELD products • Guidelines being developed for the calculation and management of claims • Switzerland • Non-binding model for general liability insurance conditions (Swiss Insurance Assoc, February 2010) • Model covers sudden and accidental environmental impact (ie not limited to pollution) • Czech Republic • Some insurers have begun to offer ELD products • Questionable whether products are compatible with ELD scope

  36. Environmental Liability Directive EC ELD Article 14 Report Challenges for Insurance EU Action on Oil Pollution 2013/14 EC ELD Review 1 1 2 3 4 5 Source CEA

  37. DG Energy Proposal In the summer of 2010, Energy Commissioner GüntherOettinger proposed that “oil spill insurance” against environmental catastrophes should be made mandatory for all oil companies in Europe. Oettinger recommended that the EU “consider a global civil responsibility insurance scheme” that would be “similar to the one for nuclear power plant operators, which have to hold financial reserves ready to be employed in the event of an accident”. *Photo by European Commission

  38. European Parliament Motion The EP Committee for Environment, Public Health and Food Safety (EP ENVI Committee) held a meeting on 6 September 2010 to discuss taking action in relation to this proposal. The Committee adopted a question for oral answer to the Commission that asked if the EC would be “willing to revise the Environment Liability Directive and establish thorough and strict liability for all offshore drilling extraction and injection practices within the EU”. The Committee considered a Motion for a Resolution on EU action on oil exploration and extraction in Europe, ie a request that the EC address “gaps and weaknesses in the regulatory framework at EU level” with respect to environmental liability. This motion further proposed that a compulsory insurance scheme for oil extraction and exploration should be considered for the ELD.

  39. European Parliament Motion At the EP ENVI Committee meeting on 27 September, the Directorate-General of Environment for the EC answered to a question for oral answer by the European Parliament which concerned oil drilling and environmental liability. The EC announced that it recognised a gap on damages to water (ecological status) in the current EU legislation and that the ELD will be amended as part of a broader legislative package. On 6 October, the EP plenary debated the EP ENVI Committee. Commissioner Oettinger and the President of the Council, Olivier Chastel, participated in the debate.

  40. European Parliament Motion On 7 October, the Motion was adopted with 601 votes in favor, 23 against and 13 abstentions.

  41. Next EC ELD Review EC questions need for mandatory ELD insurance in light of BP oil spill in the Gulf of Mexico “Because of the lack of practical experience in the application of the ELD, the Commission concludes that there is not sufficient justification at the present time for introducing a harmonisedsystem of mandatory financial security.Developments in those Member States that have opted for mandatory financial security, including the gradual approach, and in the Member States that have not introduced obligatory financial security, will have to be further monitored before reliable conclusions can be drawn. The Commission will also actively monitor recent developments such as the oil spill in the Gulf of Mexico, which may provide the justification for an initiative in this area”. As reported by EC, 12 October 2010

  42. Next EC ELD Review The EC will re-examine mandatory financial security possibly before the review of the Directive planned for 2014. “While the ELD covers specific environmental damage, mainlyon land territory, the coverage of the marine environment is incomplete. The ELD extends to coastal waters and the territorial sea as regards ‘damage to water’ (through the Water Framework Directive) and to protected marine species and Natura 2000 sites within the jurisdiction of the Member States (extending to the exclusive economic zone and continental shelf where applicable), leaving a gap in the full remediation of damage to the marine environment. Damage to the marine environment due to oil spills caused by oil drilling activities is therefore not fully addressed by the present ELD provisions”. As reported by EC, 12 October 2010

  43. DG Energy Communication On 13 October 2010, the Directorate-General on Energy of the European Commission, led by Commissioner GüntherOettinger, publishes its Communication, “Facing the challenges of the safety of offshore oil and gas activities".

  44. DG Energy Communication In this communication presented by Commissioner Oettinger, the Commission states that it will: re-consider introducing a requirement for mandatory financial security examining the sufficiency of actual financial ceilings for established financial security instruments; call for “responsible licensing” by defining at EU level key requirements for the licensing of hydrocarbon exploration and production to handle the consequences of unforeseen events, including possible participation in suitable insurance schemes or risk coverage instruments; propose amendments to ELD to cover environmental damage to all marine waters (oil companies have to be responsible of clean up and remedy environmental damages caused within a zone of maximal 200 nautical miles from the coast); call for the EU to take a key role in international efforts to strengthen existing rules globally regarding issues such as financial liability for oil and gas pollution from offshore installations, currently not covered by any international convention.

  45. DG Energy Commnication Next Steps? • EC invites the European Parliament and the European Council to support and express their views on these actions. • EC to table proposals for concrete legislative and/or non-legislative measures before summer of 2011, after consultations with national regulators and other stakeholders on the scope of the proposed initiatives. • The CEA shall aim to show the EC that the main insurability issues of liabilities under the ELD are vastly different from those pertaining to offshore oil extraction and exploration, as the insurance market for oil activities is limited and highly volatile, hence, not large enough in terms of insurance capacity to cover oil company liabilities on an EU-wide basis.

  46. Environmental Liability Directive EC ELD Article 14 Report Challenges for Insurance EU Action on Oil Pollution 2013/14 EC ELD Review 1 1 2 3 4 5 Source CEA

  47. 2013/14EC ELD Review • 2013/14 ELD review should be balanced and recognise: • Substantial advances made by the (re)insurance industry in product development for environmental liabilities. • Differing liability exposures amongst EU States still prevent risks from being standardised. • Differing liability cultures result in complex risk portfolios that range from state to state. • Differing execution of the ELD by various member states means the risks are perceived at various levels.

  48. With respect to oil and mandatory financial security: 2013/14EC ELD Review • A voluntary market encourages innovation. • Each Member State can find different and effective solutions “to encourage the development of financial security instruments and markets” (Article 14). • The energy market is highly specialised and highly volatile, thus, the risks posed by oil extraction and exploration exceed the capacity of the European insurance industry on an EU-wide scale. • Oil exploration is an offshore risk and should not influence onshore risks which are intended to be under the scope of the ELD.

  49. For more information www.cea.eu CEA aisbl Square de Meeûs 29 B-1000 Brussels

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