In this time of uncertainty, it is common for me to hear that new business pipelines are drying up. This makes sense because for as long as the insurance industry has been around, the main way to generate growth was through in person networking. Just because that has been the model does not mean you cannot find new ways to generate growth.
As a millennial I find myself missing the traditional way of networking, who doesn’t love a happy hour, but it is important to realize just because the traditional way of generating growth has changed, doesn’t mean you cannot adjust and develop how you generate growth.
At the company I work for, American Risk Management Resources, we specialize in engineered environmental insurance placements that we sell on a wholesale basis. Through this pandemic we have been busier than ever because the retail producers we work with have done two things:
- Used this time as an opportunity to review a client’s existing insurance program, and
- Used this time to reach out to old connections to review their current insurance program to discover gaps in coverage created by exclusions for various contaminants that are universal in property and liability insurance policies.
Because the new normal has changed, you have to think outside the box on how you can bring value to your clients. Environmental insurance will give you a great opportunity to do this for two reasons:
Only 10% – 20% of companies that need coverage for losses arising from contamination utilize environmental insurance in their insurance program, and
There is a high likelihood that if environmental insurance is in place it is materially defective in its coverage.
So how can it be that environmental insurance is so vastly underutilized? The most common response I receive is very few companies truly understand their environmental exposures and they think it will be too expensive to purchase the insurance. That situation is almost always caused by the incumbent insurance agent advising the company.
Companies Overlook Environmental Exposures
The number one reason environmental insurance is overlooked is because few insurance buyers feel they have an environmental exposure. When they hear environmental exposures, they instantly think landfills, gas going into the air, or chemicals spilling into a stream. While those examples are true, the pollution exclusion that is commonly found in Commercial General Liability and Property policies does not stop there. In addition to the pollution exclusion you also must be mindful of any sub limits or exclusions for Mold, Virus and Bacteria. These coverage gaps can be filled by utilizing environmental insurance.
Adding environmental insurance as a sales tool will separate you from your competition and will give you something unique to talk about with businesses you are targeting as new clients since you’re unable to meet with them in the traditional way. If you partner with a specialist in environmental risk and insurance, that will separate you even further because they should be able to help you actually sell the product. A qualified knowledge resource will help you provide and show value to that new client you are targeting.
To help explain production opportunities that are commonly overlooked on main street USA accounts, below are a couple of hypothetical claim examples based on similar claims I have seen that you may not think could trigger a pollution exclusion or the Mold, Virus and Bacteria limitation endorsements.
- A general contractor hires out a subcontractor to install an HVAC system in a new apartment complex.
- The tenants of the building start to have difficulties breathing, believing the HVAC system is contaminated and sue the landlord, GC, and Sub,
- The landlord has an indemnification from the GC,
- The GC has an indemnification from the Sub, and
- No one carries environmental insurance.
Unfortunately, if any of these parties had been sold a GL policy with a Total Pollution exclusion or if the contaminate causing the injury is mold or bacteria there will be no coverage on their insurance for this loss. This could have been covered by environmental insurance including defense costs.
- An excavation company starts digging the foundation for a new shopping center.
- Not known to anyone, there was soil contamination and during excavation the company inadvertently disturbs it and the contamination is spread out,
- Operations are shut down and the project is delayed until the contamination can be remediate causing large costs to the property owner,
- The property owner who hired the excavation company has an indemnification agreement from the excavation company, and
- Neither have environmental coverage.
This again could be an uncovered claim for both parties and could have been insured by utilizing environmental insurance. This is another situation where the word contaminant triggers the pollution exclusion in the policies.
- After a major rain event a room in an apartment complex is discovered to have mold. While remediating that room, it is further discovered multiple rooms have mold and the entire floor is closed off for remediation.
- The apartment complex has costs associated with remediation, restoration, and costs to relocate the tenants and loss of rents,
- They look to their property policy and see they have coverage for mold losses through an extension but upon further inspection it is only $10,000 if the mold was caused by a covered peril, and
- The costs far exceed the $10,000 sublimit available to them.
Had the apartment complex known about environmental insurance, they could have properly insured this loss. Sub limits are nice to have, but the average commercial mold loss is $250,000 without loss of rent and extra expenses. This leaves 95% of commercial property owners very exposed to uncovered, large losses.
After working on an expert witness team involved in over $15billion in litigated environmental claims, I know from first-hand experience that it is nearly impossible to know how the pollution exclusion and the Mold, Virus and Bacteria limitations will operate in the face of a contamination loss event. I also know that anyone who is relying on a court’s interpretation of coverage is taking a risk, because the courts introduce unpredictable outcomes. From this experience my advice is to never rely on an exception to a pollution exclusion or a sub limit for the coverage on a contamination driven loss event, always fill the coverage gaps with an engineered environmental insurance replacement custom designed for the needs of that client.
The examples above illustrate unexpected costs that could have been covered by the right environmental insurance.
Environmental Coverage is not Expensive
Another misnomer is environmental insurance is expensive. This may have been true ten years ago but is no longer the case. When talking with your clients, do not assume price will hinder the purchasing decision. It is common for me to hear from my retail producers, wow that is less then what I was expecting. Even though there has been tightening in the insurance industry after COVID-19, environmental insurance continues to be competitive.
Typically, minimum premiums for environmental insurance on commercial risks will start between $1,000 and $5,000 for a one-year term with a $1,000,000 limit. Even though pricing is a key factor, it should be one of the last items discussed. I only mention pricing to debunk the myth that environmental insurance is expensive.
When pricing becomes the main selling point, you will maybe have a 20% quote to bind ratio and a 50% retention rate over three years, since someone can always be cheaper usually by selling a policy with defective coverage. On the accounts I work on, I have about an 80% quote to bind ratio and over a 90% retention rate over 3 years.
How do I hit those numbers with my agents? The difference is selling environmental insurance is a lot different than the traditional insurance new business production model. You need to 1) understand your client’s environmental exposure and the gaps in coverage they have, and 2) make sure your client understands their environmental exposure before you make the pitch to sell an environmental insurance policy. If your client understands what losses they could encounter and how their General Liability and Property policies have gaps in coverage for environmental exposures, pricing will become less of a factor.
To avoid having a 20% quote to bind ratio you need to reach out to an environmental insurance knowledge resource. They will be able to help you explain the risk and loss exposures, how coverage forms fill the gaps in general liability and property policies, and they should be able to give you a pricing indication quickly.
Environmental insurance policies are not standardized, so it is imperative you are receiving all the specimen policy forms and endorsements, and work with your environmental insurance knowledge resource to understand the coverages. If you are receiving over three quotes, it is likely you are falling into the 20% quote to bind ratio and 50% retention rate. Remember you are your client’s insurance knowledge resource. If you are only selling price, it is likely they will find someone cheaper in a couple of years and you will have put a lot of time and effort in trying to find the cheapest price every year to retain that business. There is no reason to do this. This is a line of coverage where knowledge becomes the selection criteria for the agent. Entire accounts can be won over knowledge in this narrow but deep risk management challenge.
At a time when social distancing is the new normal, there are still ways to generate growth. I am seeing this by retail agents looking to organically grow their books with environmental insurance or by reaching out to previous connections and at least discussing their environmental exposures which had been overlooked in the past. It is especially easy to do in light of the COVID-19 pandemic where the gaps in coverage for virus contaminants became readily apparent to everyone.
One of the easiest ways for you to grow your book is to look at enhancing your current client’s insurance program. Environmental insurance is constantly overlooked due to the lack of understanding of the potential risks. In rare cases your clients will understand the environmental exposures they have but there is still the misperception that environmental insurance will be expensive, so companies overlook it. Environmental insurance will always seem expensive if the customer does not understand their loss exposure. You need to establish that understanding first to improve on your closing ratios on new business.
To do that, reach out to an environmental insurance knowledge resource person and ask them to help you with your current book of business. Remember that the pollution exclusion and the Mold, Virus and Bacteria limitations extend further than most people realize. An environmental insurance resource person should be able to walk you through the risk exposures and how to properly fill the gaps in coverage. This is a great time to look at alternative ways to grow your book of business.