Polluters’ damage payment plans dubbed ‘uninsurable’

Date: 23/05/02

By Laurence Frost

PLANS to make polluters pay for their environmental damage are uninsurable and doomed to fail in their present form, according to European insurance companies.

The warning came at a hearing of the European Parliament's legal affairs committee on the Commission's proposed environmental liability directive.

'I don't think any insurance company would be able to offer cover for biodiversity as it stands in the directive,' said Philip Bell, liability insurance manger for global insurer Royal & SunAlliance.

The proposed regime would cover any damage to the 20 of EU biodiversity - plant and animal species and their habitats - already identified for special protection under existing directives.

It would require polluters to compensate the public for damage, as well as paying for measures to repair it.

But Bell, who also chairs the environment working group of the European Insurance Committee (CEA), the industry's EU-level body, said insurers would be unable to offer the cover needed to make the scheme work.

He said the size of claims would be impossible to predict when, for example, pollution wiped out a colony of butterflies in an area frequented by walkers.

'I really don't know how we could quantify that,' he said. 'If we can't predict the value of the loss or the frequency of claims then we can't calculate premiums.'

Although environmental liability will bring new business to insurers, the industry's latest comments suggest it may not be the kind of business it is looking for.

But the regime's insurability is crucial both to governments - keen to avoid picking up the bill for bankrupt polluters - and businesses, who say smaller firms without affordable cover would face huge uncertainty over possible claims.

The insurers' intervention will not please environmentalists, who want the liability regime to cover all species and habitats.

'As it stands, any damage to 80 of our biodiversity would either not be remedied or would be cleaned up at public expense,' said Roberto Ferrigno of the European Environmental Bureau. 'This is unacceptable.'

Green NGOs are opposing plans to let companies off the hook if they have complied with pollution permits or acted according to the best scientific knowledge available.

But insurers warn against watering down these so-called 'state-of-the-art' and 'permit' defences.

'Any removal of these defences would inhibit the insurability of the proposal,' said Bell. 'The role played by insurance is not a substitute for proper risk management.'

Plans to make polluters pay for their environmental damage are uninsurable and doomed to fail in their present form, according to European insurance companies.