Philadelphia Insurance Companies’ Trevor Salman discusses how premises pollution coverage can be a valuable addition to environmental coverage, particularly as our climate changes.
Dan Reynolds, editor-in-chief of Risk & Insurance, recently sat down with Trevor Salman, assistant vice president of environmental underwriting at Philadelphia Insurance Companies (PHLY), to discuss the impact of climate change on insurance exposures and the evolution of environmental underwriting.
What follows is a transcript of that conversation, edited for length and clarity.
Risk & Insurance: How would you define premises pollution liability coverage, and what are the key exposures it addresses?
Trevor Salman: Premises pollution liability generally provides protection to insureds for a property-based liability risk arising from potential pollution incidents on, at, under, migrating from or through an owned or operated location. This policy offers coverage for potential historical exposures and also ongoing exposures, such as mold.
Importantly, premises pollution policies can include first-party coverage, known as discovery, allowing a property owner to find a pollution condition at their site, and trigger their own policy purchased in order to remediate that condition. Additionally, it provides the traditional property and casualty coverage provisions of third-party bodily injury and property damage (BIPD) for pollution releases.
R&I: What impact is climate change having on the types of exposures we’re seeing in terms of water intrusion in various properties?
TS: Climate change is definitely having an impact, particularly in terms of severe convective storms (SCS) and other weather-related events which have resulted in pollution. For example, flooding causing spills, wildfire encroachment causing pollution clouds or explosions from onsite chemical storage or use, and water intrusion resulting in the opportunity for mold growth. These events have wreaked havoc on insured properties.
In another example, the Texas Winter Freeze Event caused issues like frozen pipes, which burst and created indoor water intrusion. In places that are not accessible due to the severity of the storm or non-use of the building (for example, a school out on winter break), a mold condition can easily result and go unnoticed to where it spreads and impacts the entirety of the building.
Compounding the issue, weather-related losses are occurring in areas that have not historically been impacted by floods, wildfires, or SCS. Because of this, the locale have not had the actuarial data points available from events that are used by insurance carriers in order to ensure rates, coverage, terms and conditions are appropriate to maintain profitability and availability of insurance in such areas. In emerging climate-impacted areas, actuarial data development is trending to continue to predict continued loss activity in these underrepresented areas of change.
Add in the traditional tropical storms and storm surges, especially in coastal areas like the Gulf Coast, which can also cause significant damage to insured properties, insurers are having to adjust materially to jurisdictional and weather-related conditions while considering property-based pollution coverage both from a frequency and a severity standpoint.
R&I: How have underwriters, in general, evolved their approach to assessing risks, in the context of considering possible pollution exposures?
Trevor Salman, Assistant Vice President of environmental Underwriting, Philadelphia Insurance Companies
TS: Underwriting practices have undergone significant changes over the past decade, but more materially in the last three to five years. In the past, an underwriter would simply take a statement of values (SOV) for a risk, review use and number of locations, plug it into their rating, and move forward without much further analysis from a jurisdictional or locale perspective.
However, given the evolving risk landscape, especially in areas of climate shift, that approach is no longer sufficient to remain fiscally viable in the pollution marketplace. Today, underwriters must be keenly aware of the geographical locations of the sites, taking into account more property-based identification tools as underwriting metrics such as the potential, opportunity and frequency for severe weather events or storms in each area. Additionally, underwriters need to consider the legal climate in each state, as some states are particularly challenging to insurers from a litigation standpoint.
This heightened level of specificity requires more education and better communication with the claims team. Underwriters need to understand the exposures associated with each location and how they relate to the overall operational portfolio. For instance, when assessing a portfolio, they must consider exposures like mold and Legionella, which are commonly encountered in certain areas for severity metrics. Underwriters must also review the concentration of exposures in certain areas for frequency across the portfolio of the risks they are underwriting.
R&I: How is environmental coverage typically purchased? Is it usually part of a package policy with general liability (GL) or as a stand-alone policy?
TS: While there are certain instances where environmental coverage might be paired with a GL policy, such as for a manufacturing risk, it is generally purchased separately. Many GL package policies now include a “give back” to their full pollution exclusion, providing some limited coverage.
However, relying solely on this coverage can be problematic. The scope of coverage offered may be limited, or the actual limits may be insufficient, often with sub-limits as low as $50,000, which won’t go very far in the event of a claim.
Unfortunately, these limitations are often discovered too late when a claim arises that isn’t adequately covered. This realization frequently leads people to seek a full stand-alone pollution policy to ensure they have the necessary protection.
R&I: Why is PHLY focusing on the middle-market pollution insurance space?
TS: At PHLY, we made the strategic decision to focus exclusively on middle-market pollution insurance, which strongly aligns with our company’s overall strategy within the insurance marketplace. This approach allows us to concentrate our efforts and resources on becoming a provider of pollution coverage for midsize businesses.
By focusing solely on the middle market, our goal has been and continues to be to provide the same level of service and expertise that national accounts receive but tailored to the needs of middle-market customers.
R&I: What advice would you give insureds and brokers when it comes to communicating their exposures and concerns to underwriters effectively?
TS: Having a trusted and confident relationship with your underwriter is crucial; including answering questions and having an open dialogue about the goals of coverage for any specific client.
Trusting your underwriter’s expertise and knowledge base is essential.
Where there is a strong relationship between broker and underwriter, the opportunity is significantly improved to provide coverage solutions that strike the right balance of coverage and price for your specific insured.
We strive to be open about what we’re excluding and what we have the capacity to review from a coverage standpoint, and this transparency helps to develop loyalty with our insureds to our underwriters and product offerings. &