The environmental insurance market is facing a significant challenge. Despite a long history of high supply, many businesses are still unable to secure the coverage they need. This issue has become increasingly pressing as the demand for environmental insurance grows due to evolving risks.
According to industry experts, about 80% of companies do not purchase environmental insurance. This statistic has remained unchanged since 2018, highlighting a persistent gap between the need for coverage and the actual uptake. David Dybdahl, the founder of American Risk Management Resources Network, emphasizes that one major reason for this disconnect is the complexity of environmental insurance policies. Unlike more standard insurance products, these policies often require specialized knowledge that many businesses and brokers lack.
The situation is compounded by the fact that standard liability insurance policies are becoming more restrictive. Insurers are increasingly adding exclusions related to contamination, which can leave businesses exposed to significant risks. Dybdahl notes that as science advances, insurers are using improved contamination detection methods as a basis for introducing even more exclusions, particularly concerning substances like PFAs, known as "forever chemicals" due to their long-lasting presence in the environment.
Many businesses mistakenly believe that their general liability policies will protect them from environmental claims. However, Dybdahl points out that pollution exclusions in these policies are among the most litigated aspects of insurance, often leading to confusion and disputes. This lack of understanding extends to insurance brokers, many of whom do not have formal training in environmental insurance.
The urgency of the situation is underscored by the rising number of lawsuits related to PFAs. Over 6,400 PFAs-related lawsuits have been filed in federal court from 2005 to 2022, and experts warn that PFAs could become the next asbestos in terms of litigation. Companies lacking pollution coverage may find themselves facing substantial lawsuits without the necessary protection.
Regulatory uncertainty adds another layer of risk. Dybdahl is particularly concerned about potential breakdowns in enforcement rather than stricter environmental laws. If government agencies cannot enforce regulations, it could lead to increased private citizen lawsuits against non-compliant companies, resulting in significant financial consequences.
Despite these risks, many businesses still view environmental insurance as only relevant for hazardous waste sites or chemical plants. Dybdahl warns that this narrow perspective can lead to costly mistakes. For example, he recounts a case where a company contaminated a grain elevator due to a seemingly harmless act involving pesticide-coated seed corn.
To address these challenges, Dybdahl calls for better communication about environmental insurance. He suggests removing the term "pollution insurance" from policies to help shift perceptions away from hazardous waste sites to a broader understanding of potential risks.
The reality is that environmental insurance is not just a niche product; it is essential for a wide range of businesses. With exclusions growing and lawsuits on the rise, companies that do not seek specialized advice are leaving themselves vulnerable. As the landscape of environmental risks continues to evolve, understanding and securing appropriate insurance coverage is more critical than ever.