Insurance industry has been impacted by the dramatic events over the past few years. Insurance is a naturally cyclical industry that has been hit twice by a weakening market cycle and an economic crash unlike any other time in human history. This historic set of circumstances will have a lasting impact on the industry. There are still many challenges to overcome. However, there is reason to remain optimistic. The insurance industry, much like America’s spirit, is resilient and creative. The key beneficiary of the bounce back we expect is environmental insurance. It is worth looking at how it can benefit agents and what it means for them.
Contractors are the backbone to our economy. They are the backbone of our economy. Without them, things would not be built, serviced, torn apart, or reconfigured. The economic downturn has clearly affected the contracting industry. Record-breaking declines have been seen in the construction trades, as well as infrastructure and service industries. Many insurance agencies have seen their revenues decline as a result of the fact that most insurance is based on revenues or payroll.
We hope to see a gradual reversal in the slow decline over the past several years. We have seen a steady increase in the number of contractors we serve over the first four months 2010. We have seen an annual double-digit decline in renewals over the past two years. However, renewals are coming in flat or slightly off. In some cases, we project some growth in 2010 and 2011. While we still see some contractors go out of business, it seems like those who were already going down are now in control.
We are also seeing growth in our company due to a rising national awareness about environmental exposures. Even ignoring the dire situation in the Gulf, environmental awareness has risen dramatically over the past few years. Contractors are now required to demonstrate their ability to solve environmental problems on job sites, starting with lenders and commercial customers.
There are many ways this awareness is growing. Media is the first to notice this. The media has brought environmental concerns to the forefront with Chinese drywall, toxic molds, silicosis and fires at treatment site sites. There have also been lawsuits against land developers. This concern will continue to grow with the tragedy in the Gulf. It is not a distant possibility that a major environmental event could have a serious impact on a property or business. Many people now realize the potential consequences can be severe and that it is crucial for all those who may have an impact on a property to be properly protected in such an event.
This increased consciousness will allow you to see the potential problems that could be caused by pollution that you didn’t know existed. This is evident in recent losses due to erosion and sediment runoff on job sites. This problem has resulted in a variety of losses that have reached six- and seven-figures. These losses were considered pollution claims and declined coverage by standard GL insurances. Due to the broad definition of pollutants and the limited coverage offered by ISO CGL, there is a need for separate, identifiable pollution coverage.
The well-known understanding that coverage is now affordable and available has also pushed for coverage. In the late eighties, and early nineties, pollution coverage was a mystery. It is now a well-known, but not well-understood product. It is now more common to request coverage because clients are able to afford it and there are many options.
New regulations are the final factor that contractors need to be covered. The new EPA regulation on lead paint is an example. The EPA has made it mandatory that all contractors who are involved in renovations, repairs, or painting projects that disturb lead-based painted walls in schools, child care facilities, or homes built before 1978 must be certified. They also require specific work practices to avoid lead contamination. To prove it, contractors must be properly trained and certified. Further, the regulation requires that any lead-containing material be removed by lead abatement professionals who are properly trained. This brings environmental concerns to many contractors and their clients across the country.
These products will continue to be in demand. The dramatic rise in environmental coverage offered by carriers and programs is complicating matters. Ten years ago there were only fifteen to twenty companies that would offer pollution-related coverages. Today, there are close to forty. Although this may sound like a good thing for agents, it comes with real risks. Each carrier offers coverage in its own unique way. Environmental insurance is an entirely different type of business. There are many products called “Contractors Pollution Liability” or “CPL”, but each one is unique to the provider. Although forms may appear to be identical, it is rare that the forms are the exact same as those offered by companies. In my twenty-years of experience in this field, I have never seen the same policy twice.
This problem is not helped by the recent admission of several carriers. Although their forms were approved by the state, it does not necessarily mean that they are identical or offer greater coverage than the Excess market. States approve different forms of environmental coverage, unlike standardized commercial property forms and auto forms. While admitting an agent does provide security from the State guarantee fund to the agent, it should not be interpreted as implying that the product is better in any other manner.
Agents must review the coverage they offer clients and make sure it covers the client’s needs. Many forms on the market have restrictive language that can result in inadequate coverage. Agents should request copies of all policies before they present terms to clients.
After coverage is established, the next step is to find the right carrier. Agents must make informed choices about the client’s needs due to the wide variety of companies available. There are several important factors to consider. The first is the overall rating for the carrier that offers coverage. The A.M. Best rating is the best indicator of how well an agent will do in today’s volatile market. It is important to select carriers who have made an effort to deal with environmental risks. Companies that have both significant environmental underwriting and in-house environmental claims personnel are considered to be this.
It is also a good idea to work with carriers who offer additional coverage. While you may be seeking Contractors Pollution Liability to cover your street and road contractors, the possibility of adding premises pollution coverage could greatly enhance your proposal and increase their coverage. You can offer your client a complete range of coverages from many of the leading carriers, which will allow you to complement their offering and also show your commitment to the business.
The growing market for environmental products has a number of benefits. It also offers a wide range of products and the desire to offer coverage. All of the top-tier carriers are open to offering pollution coverage to a broad range of contractors. Until a few years back, residential contractors were not able to get pollution coverage that included Mold. This has changed and most companies now offer coverage for these risks. This has allowed most contractors to be covered for their environmental exposure.
The current market is gaining more coverage than was possible just a few years back. Many carriers offer defense beyond the limits, with a blanket additional insured, limited coverage, and a cap. Many of these carriers will work with agents to expand coverage. You should remember that much of this coverage can be negotiated and that “off-the shelf” products may not always be the best for your client. It is important to be educated about the options available when working with environmental products.
Contractors Pollution Liability and Professional coverage include Mold. This is an example of contractor enhanced coverage. This coverage includes Mold and is not offered by many carriers. For a variety of reasons, Professional coverage is important. Professional coverage is not available on most CPL policies. This means that it does not cover supervision of subcontractors. Professional coverage would be available if a sub causes pollution. The suit will allege that the insured failed to supervise the sub properly. Contractors often make changes to the job in order to plan items. Sometimes a duct could be moved and the resulting routing might cause a mold problem. This coverage enhancement is very important if the claim is filed as Professional.
Green technology firms are the last area we think bodes well in the environment insurance industry. The market segment has seen significant growth in the past year and, with current events, we expect that this trend will continue. Environmental insurance companies see many green tech firms as great prospects and are happy to offer a wide range of coverages. Many of these companies are contractors, but they are seen as high-risk due to the complexity of their work. This enhanced training results in a higher-paid, more skilled workforce which historically has meant that the insurance company is at greater risk.
Although the market remains very weak and companies are still cautious due to economic fragility, there is good reason to believe things will improve. Agencies can increase their revenues by finding additional coverage that helps contractors compete in the marketplace. Agents who are able to understand the complex, but important coverage can find many opportunities in today’s changing market.