In response to our article last week on Environmental Insurance as an Investment. we received tremendous feedback. Thank you everyone who joined in on the conversation. Here is one of the many responses/questions we received. We thought this was well worth sharing along with our response. Thanks for reading and please keep the questions and comments flowing!
I believe you make excellent sales points. The client still needs to realize the actual cost of Environmental Insurance vs. the size of the jobs available that require it. I also agree that it’s a nice “value add” when bidding on jobs that do not require it, but it would be hard to measure how often that puts you over the top. How does the cost break out for Environmental Insurance?
Environmental Risk Managers Response (by Parker Bunbury) –Great points and thank you for the feedback. Minimum premiums for CPL coverage with $1MM limits start at just $2,500 for both annual and project specific policies. Premiums are rated off of revenues and the type of work being done. The premium for a pollution liability insurance policy versus the policies face value costs the insured fractions of a cent on the dollar.
A situation that I come across too frequently is contractors being reactive with their environmental coverage’s as opposed to proactive, resulting in increased costs for the contractor. Many times by going with an annual policy instead of project specific policies we are able to cut costs substantially for the contractor. Also, while only some of their jobs require coverage, the insured is faced with numerous exposures and potential environmental losses on a daily basis in all of their work (see www.estrategist.com or our ERA for Contractors for more information)
As you eluded to, contractors are finding CPL coverage requirements in SOME of the contracts they win (This is a trend that is becoming standard practice and only increasing in it’s application nationwide). As a result, when a contractor wins a job requiring CPL coverage they tend to have their agent get them a “Project Specific Policy” for that job. Minimum premiums as I mentioned earlier are $2,500 for $1MM limits, whether the coverage is project specific or annual. Each job the contractor wins that requires coverage, they are getting another “Project Specific Policy” to meet contractual requirements for coverage. If the contractor took a proactive approach there is potential for the contractor to realize substantial savings in terms of premium.
Here’s a simple example – let’s say a contractor doing $5MM in revenue annually wins 4 contracts annually that require CPL coverage. That’s 4 “Project Specific Policies” at $1m limits, $2,500 a piece if the contractor handles coverage re-actively which results in $10,000 in premium. Interestingly, if the contractor was proactive about their environmental coverage’s, and purchased an annual policy that would cover them for all of their work, they would be paying around $5,000 in premium. In this particular instance, a savings of over 50%. Obviously there are variables involved and each contractor is unique, but my point is when insureds are proactive about their environmental exposures and managing them, there is the opportunity for them to save money while gaining value. The value provided by having coverage in place for all of their work is an essential need for the majority of businesses in our country, as the average environmental loss would put most small businesses out of business. With 98% of U.S. businesses being small businesses (100 employees of less).