Environmental Risk

Changes in Energy Regulation

The power of states and individuals to bring action in the case of an environmental event remains intact despite the new administration's proposals.
By: | April 7, 2017 • 5 min read

Even as the Trump administration takes steps to ease environmental regulations and defund the Environmental Protection Agency, insurance and environment experts expect little change in companies’ environmental stewardship or long-term responsibilities.

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“I expect companies to stay the course of social and environmental responsibility,” responding to their own corporate cultures, the long-tail nature of environmental claims, tort law and regulations by each state’s Department of Environmental Protection (DEP), said Tom Williams, head, environmental liability, North America, Allianz Global Corporate & Specialty.

“Underwriters will still look for companies to take environmental and health and safety programs seriously,” said Marcel Ricciardelli, lead environmental insurance underwriter, Allied World.
“We look for a history of robust environmental risk management.”

The long-tail nature of environmental liability, said Avram J. Frankel, principal, Integral Consulting Inc., an international science and engineering firm, helps incentivize companies to support strong environmental programs.

“Administrations may end in four years, but environmental liability keeps on going.”

Long policy terms “lock underwriters into risk for the long term,” said Ken Burrell, managing director, Synapse Services LLC. Most of his clients plan accordingly, with 10 to 15 year business plans — exceeding even a two-term administration — that include budgets for environmental controls and risk management.

In addition, he said, “reputational risks are high considerations in business decisions, regardless of regulatory enforcement. Companies don’t want blowback from a blowout.”

What Regulations May Change?

“Expect a focus on the Clean Water Act and Clean Air Act,” Burrell wrote in an email. “If budgets are reduced, there will be fewer resources for enforcement, but reduced regulatory enforcement will not necessarily reduce exposure to loss. If enforcement wanes, expect an increase in litigation from private citizen suits in an effort to drive action.”

The EPA takes the lead in some regulatory arenas, Frankel said, and states lead in others. In some cases, the EPA delegates authority. Enforcement varies by state.

Past administrations’ inconsistent environmental track records confound predictions in this one, he said. New restraints are unlikely under President Trump, who declared in February that environmental regulations are “out of control.”

“It appears that much, if not all, pending rulemaking could be suspended under this administration,” Frankel said.

Final rules take years to promulgate, he said, and normally take years to undo. For example, the Stream Protection Rule — which seeks to protect waterways from coal mining residue and which Congress rolled back in February by invoking the seldom-used Congressional Review Act — was the result of eight years of review and analysis by the states and scientific bodies, said Pat Parenteau, senior counsel, professor of law, Vermont Law School in a National Public Radio interview.

The speed at which Congress acted to undo the Stream Protection Rule introduces “a brave new world for environmental regulation at the federal level,” Frankel wrote in an email.

“We appear to be in a new era, and it will be entirely up to the states to regulate these matters.”

Kevin Haas, partner, Clyde & Co.

Also “in peril,” said Kevin Haas, partner at Clyde & Co., an international law firm, are federal regulations pertaining to oil and gas exploration, offshore and ocean drilling, fracking, interstate oil and gas pipelines. Regulations that could curtail those operations in the interest of endangered species and national parks may also face rollback.

The administration’s February freeze on new and pending regulations would halt four very nearly finished Energy Department efficiency standards designed to reduce energy use, consumer bills and greenhouse gas emissions, according to the “Washington Post.”

Even in the absence of federal regulation or slowdown of enforcement — which would trigger significant pushback from the agencies themselves — states would continue to regulate, said Frankel, and tort law will continue to pressure companies toward environmental responsibility.

Federal standards usually represent the minimum, said Ricciardelli. Insurers can expect little change in enforcement in states with strong environmental protections, such as California, Washington, Oregon, Massachusetts, New Jersey and New York.

For example, New Jersey’s air standards, said Larry Hajna, press officer, N.J. Department of Environmental Protection, historically exceed the EPA’s, driven by “the need to achieve federal clean air standards in a densely populated state with a lot of cars and industry.”

Even some oil- and gas-producing states have their own strict regulations that “we don’t see changing soon,” said Kevin Sisk, senior vice president, Lockton.

These include Louisiana, where a closely watched lawsuit against more than 90 oil, gas and pipeline companies alleges degradation of wetlands that form a natural hurricane buffer for New Orleans by drilling and dredging canals along the coast.

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Claims related to that case may go back 100 years, said Sisk. “Any changes to federal regulations wouldn’t change potential liabilities associated with that lawsuit or with other common industry exposures.”

Counterintuitively, a reduction in exploration and production can trigger a spike in certain claims, said Sisk, when combined with a financially distressed industry.

After commodity prices collapsed and the moratorium on offshore drilling from the 2010 Mocondo Well blowout in the Gulf of Mexico, some companies laid off staff and deferred preventive maintenance, which contributed to pollution releases.

“Any changes to federal regulations wouldn’t change potential liabilities associated with that lawsuit or with other common industry exposures.” – Kevin Sisk, senior vice president, Lockton

“The oil and gas infrastructure was neglected when companies couldn’t explore for new reserves,” said Williams. He speculates that the inverse will happen in the Trump administration.
“Presumably, the pendulum will swing in the other direction in the next administration,” said Haas.

More drilling, mining, exploration, etc., also creates more opportunities for risk of spills, leaks, effusions, contaminations and damage to endangered species, said Haas, but risk management tools and techniques, including new technology, can help prevent loss of product and claims from spills.

Energy companies and carriers can seek technological risk management and insurance solutions. “The Internet of Things contributes to fewer accidents by monitoring temperature, pressure, flow and leaks in pipelines and drill sites where people can’t see,” Haas said.

“Technology could offset adverse impacts from reduced regulation and EPA personnel on the job.” &

Susannah Levine writes about health care, education and technology. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Insurtech

Kiss Your Annual Renewal Goodbye; On-Demand Insurance Challenges the Traditional Policy

Gig workers' unique insurance needs drive delivery of on-demand coverage.
By: | September 14, 2018 • 6 min read

The gig economy is growing. Nearly six million Americans, or 3.8 percent of the U.S. workforce, now have “contingent” work arrangements, with a further 10.6 million in categories such as independent contractors, on-call workers or temporary help agency staff and for-contract firms, often with well-known names such as Uber, Lyft and Airbnb.

Scott Walchek, founding chairman and CEO, Trōv

The number of Americans owning a drone is also increasing — one recent survey suggested as much as one in 12 of the population — sparking vigorous debate on how regulation should apply to where and when the devices operate.

Add to this other 21st century societal changes, such as consumers’ appetite for other electronic gadgets and the advent of autonomous vehicles. It’s clear that the cover offered by the annually renewable traditional insurance policy is often not fit for purpose. Helped by the sophistication of insurance technology, the response has been an expanding range of ‘on-demand’ covers.

The term ‘on-demand’ is open to various interpretations. For Scott Walchek, founding chairman and CEO of pioneering on-demand insurance platform Trōv, it’s about “giving people agency over the items they own and enabling them to turn on insurance cover whenever they want for whatever they want — often for just a single item.”

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“On-demand represents a whole new behavior and attitude towards insurance, which for years has very much been a case of ‘get it and forget it,’ ” said Walchek.

Trōv’s mobile app enables users to insure just a single item, such as a laptop, whenever they wish and to also select the period of cover required. When ready to buy insurance, they then snap a picture of the sales receipt or product code of the item they want covered.

Welcoming Trōv: A New On-Demand Arrival

While Walchek, who set up Trōv in 2012, stressed it’s a technology company and not an insurance company, it has attracted industry giants such as AXA and Munich Re as partners. Trōv began the U.S. roll-out of its on-demand personal property products this summer by launching in Arizona, having already established itself in Australia and the United Kingdom.

“Australia and the UK were great testing grounds, thanks to their single regulatory authorities,” said Walchek. “Trōv is already approved in 45 states, and we expect to complete the process in all by November.

“On-demand products have a particular appeal to millennials who love the idea of having control via their smart devices and have embraced the concept of an unbundling of experiences: 75 percent of our users are in the 18 to 35 age group.” – Scott Walchek, founding chairman and CEO, Trōv

“On-demand products have a particular appeal to millennials who love the idea of having control via their smart devices and have embraced the concept of an unbundling of experiences: 75 percent of our users are in the 18 to 35 age group,” he added.

“But a mass of tectonic societal shifts is also impacting older generations — on-demand cover fits the new ways in which they work, particularly the ‘untethered’ who aren’t always in the same workplace or using the same device. So we see on-demand going into societal lifestyle changes.”

Wooing Baby Boomers

In addition to its backing for Trōv, across the Atlantic, AXA has partnered with Insurtech start-up By Miles, launching a pay-as-you-go car insurance policy in the UK. The product is promoted as low-cost car insurance for drivers who travel no more than 140 miles per week, or 7,000 miles annually.

“Due to the growing need for these products, companies such as Marmalade — cover for learner drivers — and Cuvva — cover for part-time drivers — have also increased in popularity, and we expect to see more enter the market in the near future,” said AXA UK’s head of telematics, Katy Simpson.

Simpson confirmed that the new products’ initial appeal is to younger motorists, who are more regular users of new technology, while older drivers are warier about sharing too much personal information. However, she expects this to change as on-demand products become more prevalent.

“Looking at mileage-based insurance, such as By Miles specifically, it’s actually older generations who are most likely to save money, as the use of their vehicles tends to decline. Our job is therefore to not only create more customer-centric products but also highlight their benefits to everyone.”

Another Insurtech ready to partner with long-established names is New York-based Slice Labs, which in the UK is working with Legal & General to enter the homeshare insurance market, recently announcing that XL Catlin will use its insurance cloud services platform to create the world’s first on-demand cyber insurance solution.

“For our cyber product, we were looking for a partner on the fintech side, which dovetailed perfectly with what Slice was trying to do,” said John Coletti, head of XL Catlin’s cyber insurance team.

“The premise of selling cyber insurance to small businesses needs a platform such as that provided by Slice — we can get to customers in a discrete, seamless manner, and the partnership offers potential to open up other products.”

Slice Labs’ CEO Tim Attia added: “You can roll up on-demand cover in many different areas, ranging from contract workers to vacation rentals.

“The next leap forward will be provided by the new economy, which will create a range of new risks for on-demand insurance to respond to. McKinsey forecasts that by 2025, ecosystems will account for 30 percent of global premium revenue.

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“When you’re a start-up, you can innovate and question long-held assumptions, but you don’t have the scale that an insurer can provide,” said Attia. “Our platform works well in getting new products out to the market and is scalable.”

Slice Labs is now reviewing the emerging markets, which aren’t hampered by “old, outdated infrastructures,” and plans to test the water via a hackathon in southeast Asia.

Collaboration Vs Competition

Insurtech-insurer collaborations suggest that the industry noted the banking sector’s experience, which names the tech disruptors before deciding partnerships, made greater sense commercially.

“It’s an interesting correlation,” said Slice’s managing director for marketing, Emily Kosick.

“I believe the trend worth calling out is that the window for insurers to innovate is much shorter, thanks to the banking sector’s efforts to offer omni-channel banking, incorporating mobile devices and, more recently, intelligent assistants like Alexa for personal banking.

“Banks have bought into the value of these technology partnerships but had the benefit of consumer expectations changing slowly with them. This compares to insurers who are in an ever-increasing on-demand world where the risk is high for laggards to be left behind.”

As with fintechs in banking, Insurtechs initially focused on the retail segment, with 75 percent of business in personal lines and the remainder in the commercial segment.

“Banks have bought into the value of these technology partnerships but had the benefit of consumer expectations changing slowly with them. This compares to insurers who are in an ever-increasing on-demand world where the risk is high for laggards to be left behind.” — Emily Kosick, managing director, marketing, Slice

Those proportions may be set to change, with innovations such as digital commercial insurance brokerage Embroker’s recent launch of the first digital D&O liability insurance policy, designed for venture capital-backed tech start-ups and reinsured by Munich Re.

Embroker said coverage that formerly took weeks to obtain is now available instantly.

“We focus on three main issues in developing new digital business — what is the customer’s pain point, what is the expense ratio and does it lend itself to algorithmic underwriting?” said CEO Matt Miller. “Workers’ compensation is another obvious class of insurance that can benefit from this approach.”

Jason Griswold, co-founder and chief operating officer of Insurtech REIN, highlighted further opportunities: “I’d add a third category to personal and business lines and that’s business-to-business-to-consumer. It’s there we see the biggest opportunities for partnering with major ecosystems generating large numbers of insureds and also big volumes of data.”

For now, insurers are accommodating Insurtech disruption. Will that change?

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“Insurtechs have focused on products that regulators can understand easily and for which there is clear existing legislation, with consumer protection and insurer solvency the two issues of paramount importance,” noted Shawn Hanson, litigation partner at law firm Akin Gump.

“In time, we could see the disruptors partner with reinsurers rather than primary carriers. Another possibility is the likes of Amazon, Alphabet, Facebook and Apple, with their massive balance sheets, deciding to link up with a reinsurer,” he said.

“You can imagine one of them finding a good Insurtech and buying it, much as Amazon’s purchase of Whole Foods gave it entry into the retail sector.” &

Graham Buck is a UK-based writer and has contributed to Risk & Insurance® since 1998. He can be reached at riskletters.com.