Creating Opportunities from the Toxic Misperceptions of Environmental Risk Management

Extraordinary new business production opportunities are created by common misperceptions about environmental risks and insurance. The biggest challenge for new business producers is how do you create a competitive advantage in a business where your competitors likely have forgotten more than you have had time to learn in the insurance business.  There are few lines of coverage where that deep experience of the incumbent agent works against them. Environmental insurance is one place where that holds true.

Environmental insurance is used to fill coverage gaps created by pollution exclusions that are found in virtually all property and liability insurance policies sold today. The common misperceptions held by most insurance producers can prove to be toxic to them in a competitive situation. That is your opportunity, the more they know or think they know about pollution exclusions and environmental insurance, the better off you will be. Why? Because 9 out of 10 times producers get it wrong.

I am lucky to be working as a wholesale broker specializing in a class of business where after 40 years of continuous availability 1 out of 10 accounts that need environmental insurance have it in place. Of those 1 in 10 commercial insurance buyers that have been sold an environmental insurance policy, half of the policies are not suited for the purpose for which they are being used. The main reasons for this extreme failure rate to service the needs of the customer are:

  1. The common misperceptions held by seasoned insurance agents about how pollution exclusions operate, and
  2. The shortage of educational venues on environmental risks and insurance.

The key to success for young professionals in the insurance business is to find a depressed market and fulfill a need. It is hard to find a more universally unaddressed need than environmental insurance on commercial insurance buyers. For an insurance nerd willing to take the time to learn the subject matter, doing so can create a competitive advantage on accounts ranging from industrial, to commercial properties to farms. The thing I like the most about helping my agents be successful in the sale of environmental insurance is that I do not have to compete in a line of coverage like automobile or workers compensation, where my competitor has already forgotten more than I have learned in my tenure in the insurance business.  That is true even though I have obtained my AINS, CIC and working towards my CPCU designation.

What are the toxic misperceptions held by insurance producers and how can you use them to your competitive advantage?

The insurance industry is slow to change its way and it is common for seasoned insurance veterans to employ the same strategy they have used their entire career with minor tweaks. As client’s exposures, regulatory regulations, and insurance coverages change, those standing idle are opening the door for you.

The most common toxic misperceptions I have seen are:

  1. Pollution exclusions only apply to hazardous waste,
  2. Proper insurance to fill the pollution exclusion coverage gap is expensive,
  3. Market access to environmental insurance eliminates the need for expertise, and 
  4. All environmental insurance policies are created equally.

For a new business producer looking to grow a book of business, combining expertise in environmental risk insurance and knowing the toxic misconceptions held by your competitors can create the following advantages: 

  1. This is a  great door opener. On most accounts, since coverage is not in place the        customer does not have to fire the incumbent agent in order to hire you
  2. If the current coverage is clearly and fundamentally flawed, the customer will be inclined to fire the incumbent agent over perceived competency issues on the entire account.
  3. The subject is complex enough to eliminate easy duplication which creates a sustainable competitive advantage once mastered.  

I know that this message about new business opportunities in environment insurance is hard to believe but it is based on my personal experience, I have seen it put into action. In 2016, in a competition hosted by Business Insurance America,  two of the top 10 insurance producers in the United States specialized in environmental insurance and they were both only 26 years old. So, there is proof of concept.

The failure rate of agents in this line of coverage is extremely high. I do risk management consulting for one of the largest contractor referral networks.  On almost every insurance policy review I do, well-intentioned but naive incumbent insurance agents across the country have provided bogus insurance certificates to my client. The certificates of insurance are representing coverage that is not provided in the policy. Hard to believe I know but my facts are based upon the comparison of the contractor’s actual insurance policy compared to the insurance requirements found in my client’s contracts.

After reviewing over a thousand in-force insurance policies, over 90% of the contractors in the referral network are sold policies that do not meet the insurance the contractors have agreed to provide to the referral network. The specialized policies that are free of the common fatal coverage design flaw do not cost more than the flawed policies. So why the extraordinary failure rate, toxic misperceptions.

In another firsthand example of toxic misperceptions commonly found in environmental risk management, on my first day at American Risk Management Resources Network, LLC.  my boss handed me a file and said, “This is a $500,000,000 insurance coverage problem that we need to solve as an expert witness, do not mess it up.” At the time I had never heard of an expert witness and $500,000,000 was an eye-popping number.  Over ten billion dollars later in litigated pollution coverage matters, I have a very good handle on what an expert witness does. It is from that experience that I have observed the toxic misperceptions of environmental insurance put to the test.

In that first expert case, the owner of a facility decided not to purchase environmental insurance for what would have been a net after-tax cost of $39,000.  In what later became a $15,000,000 uninsured loss the next year more than a decade ago, ultimately cost the firm $630,000,000 in lost shareholder value. Lesson learned, there is value in environmental insurance that runs well beyond the policy form. 

Where can young insurance professionals learn about environmental insurance?

To become an expert in environmental risks and insurance you must seek resources outside your typical resource center. As I mentioned earlier, there are currently just a few educational venues where you can learn about environmental insurance. If you are working towards obtaining any designations you will probably be introduced to the topic in a few paragraphs, but I can tell you from attending those courses you will only be scratching the surface. The good news is I have started to see more educational venues become available in the past couple of years.  For example, this past year I helped our President create a CIC course that is dedicated to environmental insurance and pollution exclusions. That course is now live for 2020 and can be brought live to agencies. Chris Bunbury also offers courses, including CIC courses, dedicated to environmental insurance and can be reached at chris@ermi.us. The Society of Environment Insurance Professional also has a multi-part webcast that is available online at https://vimeo.com/ondemand/seipbootcamp .

When I first started in the industry I was given “A User’s Guide to Environmental Insurance” which was written by our President to read. I still read through this a couple of times a year. You can find it on our website at www.armr.net. I have heard from environmental insurance underwriters and even from a risk manager in China that they learned about environmental insurance by reading it. On top of reading “A User’s Guide to Environmental Insurance”, I have also spent countless hours reading through insurance policies for our expert witness work and to make sure they meet my client’s insurance requirements. My unique experience of being involved in expert witness cases isn’t widely available to everyone, but it has also played a key role in my own learning of environmental insurance, mostly the lessons I have learned is what not to do.

Young insurance professionals who are looking for a way to separate themselves from competitors by learning about environmental insurance should reach out to a competent subject matter resource. Beware of wolves in sheep’s clothing, having access to environment insurance markets does not equate to a subject matter resource. For example, most Contractor Pollution Liability policies follow the same coverage outline today as they did when they were originally created for contractors cleaning up superfund sites. A superfund contractor has vastly different risk exposures than a trade contractor or manure hauler.

In the age of technology, Google will produce a wealth of resources for environmental insurance, but you need to go deeper into the selection criteria to find a subject matter resource.  Check out the credentials of anyone you are going to and depending on as a subject matter resource.  In a line of insurance where more than half of the actual coverage is defined by things outside of the base policy form, access to insurance policies does not equate to a subject matter resource.  You will need to find a resource person who understands where the other half of the coverage comes from. Attributing market access to a subject matter resource is another example of where incumbent agents with decades of experience in the insurance industry are vulnerable to competition. Their misperceptions can prove to be toxic to their incumbency by a resource supported producer.

Conclusion

The business opportunities made available by incorporating environmental insurance into your client’s insurance programs are endless. With a 90% failure rate of insurance placements, I review the savvy, 30 year-plus insurance veterans are leaving the doors open for you. You cannot compete on insurance knowledge or decade-old relationships to provide value. The toxic misperceptions the insurance industry veterans have around environmental risk management gives you the opportunity to get your foot in the door.

Becoming an expert in environmental insurance by reaching out to competent resources to avoid the toxic misperceptions held by insurance producers can separate young insurance professionals when being compared to their peers. By changing the common toxic misperceptions of environmental risks and insurance to an uncommon opportunistic approach, you will be able to develop many more opportunities.  

 

About Dustin Helmenstine, CIC, AINS

Dustin Helmenstine joined American Risk Management Resources Network, LLC in 2015. He works as an insurance broker specializing in environmental risk management and insurance. He works on insurance placements ranging from contractor’s pollution liability contractual requirements, to the transfer of contaminated properties and the cleanup of superfund sites. He has provided support in the design of multiple insurance programs. Dustin is the lead researcher in support of expert witness engagements and risk management consulting projects with project values exceeding $10,000,0000. He has analyzed insurance coverage on over a thousand insurance policies and the financial stability of large, Fortune 500 companies as it pertains to their environmental risk exposures. Past clients include Minnesota’s Department of Commerce, the Michigan Department of Attorney General and Contractor Connections, the largest contractor insurance referral network. Dustin graduated from the University of Wisconsin-Madison with a bachelor’s degree in personal finance. He has completed his Certified Insurance Counselor (CIC) designation, Associates in General Insurance (AINS) designation and is working towards his Chartered Property Casualty Underwriter (CPCU) designation. He is currently a committee member of the IIAW Emerging Leaders and volunteers his time to the Sons of the American Legion and coaching youth basketball.

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