French insurers to offer wide ELD cover

By Rick Mitchell

PARIS--The latest environmental liability product by Paris-based insurer AXA Corporate Solutions, a unit of AXA S.A., includes coverage for liabilities created by Europe's Environmental Liability Directive (2004/35/EC) and is to be rolled out in other European countries soon.

The policy, which draws on both Anglo-Saxon and European approaches to environmental insurance, is the first of such policies in France to combine cover for existing environmental liabilities with those created by the directive, experts said.

And a second French insurer has a competing product in the works.

Prime mover

AXA Corporate Solutions has launched Ecosphere, an environmental risk policy it says is the first in France to fully cover the strict requirements created by the Environmental Liability Directive. The transposition of the directive, which took force April 30 in France, was delayed by presidential elections, although it could happen this fall, experts said.

In France, AXA introduced its Ecosphere policy in time for January renewals and "it has since garnered interest from important large accounts," said Sylvie Monereau, environmental expert underwriter at AXA Corporate Solutions. "For now, the market is underdeveloped," she said, adding that "AXA plans to market Ecosphere elsewhere in Europe soon, where demand is pressing.

Growth potential

Christophe Mocklinghoff, director for environmental risks at brokerage Marsh France, a unit of New York-based Marsh Inc., said "Ecosphere will be copied elsewhere. AXA is already insuring French companies abroad with this insurance and will soon offer it in other countries." He said, "We think the potential market in Europe for environmental insurance is at least 10 times larger than what it is today, a small niche. But it could take time. French companies do not fully comprehend the Environmental Liability Directive's impact. It's only a few months old and not really integrated into enterprises' strategy yet. For brokers, it will be a real challenge to explain environmental risk coverage."

Assurances Generales de France, a unit of Allianz S.E. will launch a similar, rival product this month, it said. Ecosphere is the first environmental policy for large corporate clients backed by specialized environmental reinsurance by Paris-based Assurpol, a co-reinsurance pool of 10 reinsurers and 35 insurers, French and foreign— including AXA—established in 1989 specifically to cover environmental risks, said Elisabeth Abrassart, Assurpol's director.

In the fall of 2006, Assurpol produced an environmental coverage product, Contrat d'Assurance des Risques Environnementaux, which any of its members can market, she said. "AXA Corporate Solutions has structured a new contract based on CARE, but also covering new risks not insured by Assurpol," she said.

Marsh's Mr. Mocklinghoff, said: "Ecosphere's coverage for business interruption risks and its ability to intervene without a third-party claim permits more proactive risk management. But we will have to see how the policy will react to real situations. There will be more to negotiate than with an Anglo-Saxon policy."

Cross pollination

He called Ecosphere an example of "a fascinating trend of mutual influence between traditional continental markets and Anglo-Saxon markets that have come to Paris." Citing policies marketed by New York-based American International Group, Inc., Hamilton, Bermuda-based ACE Ltd. and XL Capital Ltd., and Warren, New Jersey- based Chubb Corp., he said: "Ecosphere insures all the necessary liability regarding operational risks covered by these Anglo-Saxon polices and also adds coverage for exposure created by the directive. All those risks are offered for the first time in one policy."

He also pointed out Ecosphere's market advantage in France as the first comprehensive Assurpol product out of the gate. "Assurpol coverage is unique in that it does not exclude microbiological contamination, which can be a problem in water treatment, air conditioning, refrigeration—for example in building projects, or hospitals," Mr. Mocklinghoff said.

"Anglo-Saxon contracts are extremely limited in this respect, so that is an important point for Ecosphere," he added.

Ecosphere does not cover damages resulting from dangers unknown when a product or substance is developed, said Ms. Monereau. "For example, if something turns out to be toxic in 10 years, that is not covered," she said. Other exclusions include asbestos, electromagnetic fields, and genetically-modified organisms.

"Not a miracle product"

AXA S.A.’s Ecosphère, has been lauded for its groundbreaking coverage for the Environmental Liability Directive-inspired operational risks, but its also has coverage gaps, experts said.

Paul-Vincent Valtat is chief risk manager for the operations of the port of Paris authority, Port Autonome de Paris, which leases sites to private operators. He said "Ecosphere goes a little further [than earlier policies] but doesn't solve the problem of orphan pollution. We have cases where there have been a lot of different businesses on a site. The operators are gone and you do not know the parent of the pollution. In a polluter-pays system this is a problem. To my knowledge, no insurance covers this dysfunction."

For Mr. Mocklinghoff, "Ecosphere's drawback is that it is not adapted to pre-existing pollution, so you cannot use it in mergers and acquisitions. Pre-existing pollution can have an effect during the contract and a bearing on the fair price. For example, a gas station could have hydrocarbon in the soil that is only detected later. You can never analyze exactly what happened in the past or define what you will have to pay to compensate a third party or loss of operations. European policies refuse to cover this. Anglo-Saxon policies are very clear, so these are used for mergers and acquisitions. I hope AXA eventually changes this facet."

Yvon Martinet, a partner in Paris- and Brussels-based law firm Savin Martinet Associates specializing in industrial and environmental regulation and risks, said "AXA's is not a miracle product that responds to every need but it is an interesting and complementary product that fills insufficiencies on the market."

"[Ecosphere] forces the industrial company to have a clear view of its risks when negotiating the premium, rather than having the insurance provider define them. But I agree that if you do not know your risks clearly, this product would have no interest for you. There is of course the possibility of coverage with other products, such as [those provided by] Chubb or Zurich," said Mr. Martinet.

Coverage details

Monereau, at AXA Corporate Solutions, said Ecosphère covers liability to third-parties for accidental and/or gradual environmental impairment, paying emergency costs to avoid or mitigate claims. There is optional coverage available for E.U.-ordered remediation—including expenses to prevent or minimize damage, costs to restore, rehabilitate or replace damaged natural resources, or to provide equivalent alternative resources. It pays defense costs in administrative lawsuits, she said.

AXA also offers optional coverage that pays costs caused by interruptions to business operations. It also pays for soil and water remediation on the insured’s site, including investigation and verification costs. Optional coverage for de-contamination of buildings and equipment is available, she said.

Another feature in Ecosphère taken from Assurpol is capacity of €50 million per claim per insurance period, plus €10 million in additional coverage for costs linked to Environmental Liability Directive administrative orders, for €60 million in total, experts said. Ecosphère deductibles range from €25,000 to €150,000, depending on customer capacity and retention strategies. The business-interruption deductible is calculated by number of days, case by case, she said. Assurances Générales de France, also part of Assurpol and a unit of Munich-based Allianz S.E., said it is putting the final touches on its own CARE-based mix-and-match environmental products—that will include coverage for the Environmental Liability Directive—to compete head-to-head with AXA.

AGF, through Allianz Global Corporate & Specialty, offers large corporate customers in France a product called TopAZ Environnement, an “entry-level product” that it plans to gradually expand with made-to-order solutions for its customers with complex environmental risks, said a spokesperson. “It can be accompanied by coverage for soil-and-water pollution cleanup, as well as coverage for the insured’s operation risks, as Ecosphère offers, but there will be much more tailored services for implementation and for a risk-control plan,” she said. Christophe Madec, subscriptions manager at AXA Corporate Solutions, countered: “We are ahead of AGF in the environmental market. Ecosphère is a complete, independent new contract for environmental risks, not just a copy of Assurpol’s language.”

(Appeared June 4, 2007)