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Environmental Risk

Seven Questions for Richard Sheldon

Mold, emerging contaminants, and increasing claims complexity are all issues to watch in the area of environmental risk.
By: | May 9, 2017 • 4 min read

Willis Towers Watson’s Richard Sheldon has more than 30 years of experience in environmental consulting, insurance underwriting and brokerage. He joined WTW in 2004 and is now responsible for the management of the firm’s North American Environmental Practice Team. Here is his take on a number of environmental exposures facing insureds.

R&I: We hear a lot about mold, that it’s an ongoing — even growing — problem for commercial property owners. How are carriers responding to this issue? Are they changing coverage terms and in what way(s)? 

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RS: The market is at a crossroads for mold coverage currently and underwriting review for this coverage is certainly becoming more stringent. Insurers are looking at limitations such as “per door” mold deductibles for habitational and hospitality risks in particular; time element coverage designs are being contemplated; and increased deductibles are being applied overall for mold coverage.  Some markets will not cover wood frame construction at all. Some have considered limiting coverage to Acts of God, while others have said they will not cover Acts of God. Insureds need to be prepared for possible coverage changes at renewal, and to either seek alternatives, or to adjust their level of risk tolerance.

R&I: Are there new contaminants that are becoming an environmental problem for property owners? What are they and why are they coming to the fore now? 

RS: PFAS (Polyfluoroalkyl Substances) have been identified by the U.S. E.P.A. as an emerging contaminant. And this is leading to some “re-opener” claims for clean-up on facilities that used these chemicals in their processes or for firefighting. Lead in drinking water has certainly also been a concern for both clients and carriers since the crisis in Flint, Mich.

R&I: Given the drumbeat of talk about regulatory change in Washington, DC, how are clients reacting? What are the most pressing questions you’re getting from them about the liability landscape?

RS: At this point, companies are watching closely to see if and how this might materialize. But so far, we haven’t seen any reactions broadly from clients or the insurance marketplace — but this could certainly change. We are hearing a lot of chatter about what activities the various states (who in some cases are charged with administering environmental regulations) will take and speculation about adequate resources going forward. Regardless of where the regulation, enforcement or budget goes, underwriters are still going to want to see insureds demonstrate they are being responsible relative to their environmental exposures.

R&I: What do you hear from carriers given all this talk of regulatory change? What are they doing to prepare for this possible shift?  

RS: Carriers have not sent any significant messages to the marketplace yet on this topic. But we do know that many have been analyzing their books more rigorously, and in particular, more so since the exit by AIG from a major part of the environmental business. Any feelings by carriers that reductions in regulatory budget could lead to diminished enforcement may further increase this scrutiny, especially for higher-risk classes of business.

R&I: We hear that managing and reporting environmental claims is becoming increasingly complex. What factors are playing into this? 

RS: Both the frequency and severity of claims has increased, driven mostly by the remediation of mold and pre-existing contamination triggered during site development activities. Each environmental claim is unique and can take on a life of its own based on the circumstances surrounding it. As brokers, we spend a lot of time working with specialty underwriters to educate clients and risk managers on the various aspects of environmental coverage and how it will respond. In addition to risk transfer, many insureds are pursuing options to secure insurance capital to help finance potential environmental losses.

R&I: Given that managing and reporting environmental claims is more complex, what should insureds be doing to improve their processes? 

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RS: Timely notice is most critical. Insureds should have a robust risk management communication program to make sure that environmental claims are reported from the field to their risk manager as soon as possible. In addition, insureds should understand coverage terms relative to carrier consent for any remediation activities. Insureds should also understand what coverage they have for emergency response, and whether there are capacity and/or time restrictions for that coverage.

R&ILooking ahead a bit, what environmental risks do you see that are emerging, that might not be a problem for insureds now, but very well could be in five years? 

RS: New risks can always emerge that we can’t anticipate. However there are some issues on the horizon that could escalate — such as trace pharmaceuticals in water, e-waste, and oil and gas industry impacts from exploration and production. The biggest question for our market is how underwriters will respond to the ongoing and increasing frequency and severity of claims.

More from Risk & Insurance

More from Risk & Insurance

High Net Worth

High Net Worth Clients Live in CAT Zones. Here’s What Their Resiliency Plan Should Include

Having a resiliency plan and practicing it can make all the difference in a disaster.
By: | September 14, 2018 • 7 min read

Packed with state-of-the-art electronics, priceless collections and high-end furnishings, and situated in scenic, often remote locations, the dwellings of high net worth individuals and families pose particular challenges when it comes to disaster resiliency. But help is on the way.

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Armed with loss data, innovative new programs, technological advances, and a growing army of niche service-providers aimed at addressing an astonishingly diverse set of risks, insurers are increasingly determined to not just insure against their high net worth clients’ losses, but to prevent them.

Insurers have long been proactive in risk mitigation, but increasingly, after the recent surge in wildfire and storm losses, insureds are now, too.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy,” said Laura Sherman, founding partner at Baldwin Krystyn Sherman Partners.

And especially in the high net worth space, preventing that loss is vastly preferable to a payout, for insurers and insureds alike.

“If insurers can preserve even one house that’s 10 or 20 or 40 million dollars … whatever they have spent in a year is money well spent. Plus they’ve saved this important asset for the client,” said Bruce Gendelman, chairman and founder Bruce Gendelman Insurance Services.

High Net Worth Vulnerabilities

Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

As the number and size of luxury homes built in vulnerable areas has increased, so has the frequency and magnitude of extreme weather events, including hurricanes, harsh cold and winter storms, and wildfires.

“There is a growing desire to inhabit this riskier terrain,” said Jason Metzger, SVP Risk Management, PURE group of insurance companies. “In the western states alone, a little over a million homes are highly vulnerable to wildfires because of their proximity to forests that are fuller of fuel than they have been in years past.”

Such homes are often filled with expensive artwork and collections, from fine wine to rare books to couture to automobiles, each presenting unique challenges. The homes themselves present other vulnerabilities.

“Larger, more sophisticated homes are bristling with more technology than ever,” said Stephen Poux, SVP and head of Risk Management Services and Loss Prevention for AIG’s Private Client Group.

“A lightning strike can trash every electronic in the home.”

Niche Service Providers

A variety of niche service providers are stepping forward to help.

Secure facilities provide hurricane-proof, wildfire-proof off-site storage for artwork, antiques, and all manner of collectibles for seasonal or rotating storage, as well as ahead of impending disasters.

Other companies help manage such collections — a substantial challenge anytime, but especially during a crisis.

“Knowing where it is, is a huge part of mitigating the risk,” said Eric Kahan, founder of Collector Systems, a cloud-based collection management company that allows collectors to monitor their collections during loans to museums, transit between homes, or evacuation to secure storage.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy.” — Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

Insurers also employ specialists in-house. AIG employs four art curators who advise clients on how to protect and preserve their art collections.

Perhaps the best known and most striking example of this kind of direct insurer involvement are the fire teams insurers retain or employ to monitor fires and even spray retardant or water on threatened properties.

High-Level Service for High Net Worth

All high net worth carriers have programs that leverage expertise, loss data, and relationships with vendors to help clients avoid and recover from losses, employing the highest levels of customer service to accomplish this as unobtrusively as possible.

“What allows you to do your job best is when you develop that relationship with a client, where it’s the same people that are interacting with them on every front for their risk management,” said Steve Bitterman, chief risk services officer for Vault Insurance.

Site visits are an essential first step, allowing insurers to assess risks, make recommendations to reduce them, and establish plans in the event of a disaster.

“When you’re in a catastrophic situation, it’s high stress, time is of the essence, and people forget things,” said Sherman. “Having a written plan in place is paramount to success.”

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Another important component is knowing who will execute that plan in homes that are often unoccupied.

Domestic staff may lack the knowledge or authority to protect the homeowner’s assets, and during a disaster may be distracted dealing with threats to their own homes and families. Adequate planning includes ensuring that whoever is responsible has the training and authority to execute the plan.

Evaluating New Technology

Insurers use technologies like GPS and satellite imagery to determine which homes are directly threatened by storms or wildfires. They also assess and vet technologies that can be implemented by homeowners, from impact glass to alarm and monitoring systems, to more obscure but potentially more important options.

AIG’s Poux recommends two types of vents that mitigate important, and unexpected risks.

“There’s a fantastic technology called Smart Vent, which allows water to flow in and out of the foundation,” Poux said. “… The weight of water outside a foundation can push a foundation wall in. If you equalize that water inside and out at the same level, you negate that.”

Another wildfire risk — embers getting sucked into the attic — is, according to Poux, “typically the greatest cause of the destruction of homes.” But, he said, “Special ember-resisting venting, like Brandguard Vents, can remove that exposure altogether.”

Building Smart

Many disaster resiliency technologies can be applied at any time, but often the cost is fractional if implemented during initial construction. AIG’s Smart Build is a free program for new or remodeled homes that evolved out of AIG’s construction insurance programs.

Previously available only to homes valued at $5 million and up, Smart Build recently expanded to include homes of $1 million and up. Roughly 100 homes are enrolled, with an average value of $13 million.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work.” — Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“We know what goes wrong in high net worth homes,” said Poux, citing AIG’s decades of loss data.

“We’re incenting our client and by proxy their builder, their architects and their broker, to give us a seat at the design table. … That enables us to help tweak the architectural plans in ways that are very easy to do with a pencil, as opposed to after a home is built.”

Poux cites a remote ranch property in Texas.

Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“The client was rebuilding a home but also installing new roads and grading and driveways. … The property was very far from the fire department and there wasn’t any available water on the property.”

Poux’s team was able to recommend underground water storage tanks, something that would have been prohibitively expensive after construction.

“But if the ground is open and you’ve got heavy equipment, it’s a relatively minor additional expense.”

Homes that graduate from the Smart Build program may be eligible for preferred pricing due to their added resilience, Poux said.

Recovery from Loss

A major component of disaster resiliency is still recovery from loss, and preparation is key to the prompt service expected by homeowners paying six- or seven-figure premiums.

Before Irma, PURE sent contact information for pre-assigned claim adjusters to insureds in the storm’s direct path.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work,” said Curt Goetsch, head of underwriting for Ironshore’s Private Client Group.

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“If you’ve got custom construction or imported materials in your house, you’re not going to go down the street and just find somebody that can do that kind of work, or has those materials in stock.”

In the wake of disaster, even basic services can be scarce.

“Our claims and risk management departments have to work together in advance of the storm,” said Bitterman, “to have contractors and restoration companies and tarp and board services that are going to respond to our company’s clients, that will commit resources to us.”

And while local agents’ connections can be invaluable, Goetsch sees insurers taking more of that responsibility from the agent, to at least get the claim started.

“When there is a disaster, the agency’s staff may have to deal with personal losses,” Goetsch said. &

Jon McGoran is a novelist and magazine editor based outside of Philadelphia. He can be reached at [email protected]