The role of Environmental Liability Insurance in the economic recovery

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What can we learn from the 2008 recession as we face the economic challenges that COVID-19 will bring, and what role could Pollution Liability Insurance play? We sat down with Kelly Coombes of EDIA Limited, a specialist environmental liability insurance broker, to discuss these key issues.

As property transactions resume in the UK

Looking ahead to what is to come in this downturn as a result of COVID-19, we could benefit by reflecting on the last significant economic decline in 2008.  During the time immediately following the crash, the real estate market stood still for a short while, but only until the shock wore off.  Investors then quickly realised that there were good deals to be had, and those with money in reserves or a business plan to complete, moved forward.  They did so swiftly to capitalise on deals, but with added caution.

Drawing on past experience

We cannot help but wade into the recession before us; in this instance we all see it coming.  However, compared to 2008 there is even greater uncertainty as we cannot predict the time arc of or the reach lockdown effects will have. We only have reasonable predictions of the changes made to the economy of 6 – 12 months from now. If we look at it from this perspective, what can companies do that could help add security and support their investments when trade resumes?

Taking a cue from actions used by businesses pulling out of the recession of 2008, investments were bolstered with appropriately tailored insurance solutions.  There was greater interest in both new and traditional products from the market.  It seemed that investors sought solutions during this uncertain time even for those risks that may have previously been accepted by cash flush businesses in times of economic stability.

Pollution releases and latent environmental risks

In the years following 2008 crash, property transactions took careful consideration of the high cost of environmental liabilities passed on through property ownership.  Even with a low likelihood of emergence these products provided increased security against latent pollution liabilities that could arise, and the market moved to support this need.  There is a key difference in pollution risks that should be considered by investors now that were not present in 2008; the public and civil society is much more aware of the environment and concerned for its future wellbeing now than they were a decade ago.

Uncertainty around Environmental Liabilities

In the 18 to 24 months before the COVID-19 restrictions, a similar interest in insurance to support the transfer of environmental liability in property transactions was apparent.  This may or may not be attributed to greater public and Government awareness due to environmental and climate change activism.  Even before we entered lockdown, there was already an increased awareness of pollution liability risk in transactions. Investors were uncertain about the potential development of these liabilities based on their long tail nature and the likely negative perception in the future.

How stringent the government will be on environmental liabilities to kick start the economy cannot be predicted.  It has been debated but based on the increased public awareness the Government may not be willing or able to sacrifice the environment.  Government has made pledges to reduce carbon emissions and support sustainable futures.  Therefore projects will most likely still require consideration of low carbon technology, waste reduction measures and green credentials to pass through planning. Along the same vein, issues which arise caused by latent environmental liabilities are less likely to escape the ‘polluter pays’ principle in the future.

Market Capabilities

When land titles are sold, the liabilities are often traded with those titles transferring to the new landowner.  Investors should be diligent and aware of all the site liabilities being transferred including environmental risks they are acquiring.  To help smooth transactions and remove environmental liabilities from property negotiations environmental liability insurance policy can be purchased and prove beneficial to both buyers and sellers.  The site pollution liability market has been in place for over 40 years in the UK and has a wealth of products and maturity to capture complex risk.  Insurance can be tailored to the needs of the transaction and site.  These products can be put in place from exchange; they can support during refurbishment and development period and remain in place for years after development is ready for future tenants or other buyers.

If you would like to know more about site pollution liability insurance to protect property transactions, please contact Gavin Oram.


Tel No: 07946223290