Where there is risk there's insurance
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2010
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17
Feb
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Where there are new categories of risk to be considered, insurance companies will follow. So it is with environmental risk in recent years. This is the view from Aon, a leading global provider of risk management services.
Environmental regulations have proliferated quickly, with 17,000 rules in force around the world, according to Steyn McDowall, Aon Global Risk Consulting Executive. Even countries like Israel are not excluded from this number, having passed 130 environmental laws in recent years.
With the increase in environmental regulations, the corresponding level of risk has gone up for companies looking to do business in the modern arena. "There's greater concern for environmental issues among customers and among public interest groups," says McDowall. "With the advent of global instant communication through mediums like Facebook and Twitter, companies are becoming more and more concerned that if they don't treat environmental problems, it will get out and harm their reputation."
"A business is like an iceberg. It used to be that 80% of assets were fixed and 20% were in market caps. Today, it's the reverse. Seventy percent are intangibles, like brand and reputation," he said, adding that "with fixed assets, you could buy insurance. Insurance doesn't cover intangibles. Instead, companies need to undertake risk management. They need to understand that perception is often greater than the actual risk."
Environmental risk insurance policies can help protect companies from significant loss due to natural disasters. In 2008, global environmental premiums were estimated at $2.34 billion. That number is expected to grow to $3.26 billion by 2012.
Environmental insurance is becoming big business worldwide and in South Africa it is also gaining in momentum. The global consumer is setting the bar for companies to be environmentally active during product / service delivery. South African organizations operate within a global arena and are being forced to adhere to local and international legislative requirements in order to compete in the global market.
Companies have to quantify and allocate funds for environmental rehabilitation and protection on projects that could run for 50 years or more. Most directors and CEO’s that start long term projects like these are not likely to be around in 50 years time and assuming that the organisation still exists it raises many issues especially regarding public and personal liability.
In Europe, for example, new environmental liability directives have passed recently which now make companies civilly liable for damage to habitats and biodiversity. In addition, companies are required to restore biodiversity. “The South African constitution expressly states that ‘everyone has the right to have their environment protected for the benefit of present and future generations’. Our constitution has provided us with a platform from which the environment must be protected for all South Africans” says McDowall. “Businesses are required by their stakeholders to engage in social responsibility and environmental protection and rehabilitation is an integral part of an organisation’s overall responsibility to the community,” he says.
McDowall continues to say that “in our own organisation Aon South Africa has been part of a community project over the past three years where a school has been plagued by severe soil erosion that is threatening to destroy the entire school building foundations. Each year a group of Aon volunteers have taken up shovels and wheel barrows in an effort to rehabilitate the eroded school grounds for their annual corporate social responsibility day.”
Environmental protection has never gone so far with more and more companies bringing up environmental risk in their meetings with the company.
"With the spread of environmental regulations comes the potential for being sued. More and more companies, and especially CEOs, are concerned about being sued, and being sued personally," says McDowall.
Environmental risk is slightly different than other types of risk because it demands much more cooperation and up front honesty from the client.
"We need to know all about the historical exposure. We need to look at all of the reports. While companies may not produce many external environmental reports, they almost all have internal ones," he says.
According to McDowall, companies can become liable retroactively if regulations change, or even if the company is meeting current regulations but it turns out the damage was more than estimated.
Companies like Aon carry out benchmark assessments and help companies figure out how to meet standards and manage their risk.
“Its important to realize that when environmental risk policies were first created ten years ago, some of them were very broad and very cheap so early adapters got broader coverage. These days, the issues are complex, and the policies have become equally sophisticated,” concludes McDowall.
Source: Cathy Findley Public Relations
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