By: David Dybdahl| June 2017
Today, environmental impairment liability (EIL) claims related to mold have overshadowed all of the other claims generated by the traditional industrial buyers of EIL policies, most notably in the hospitality sector and high-rise condos. In my experience (from surveys of insurance agents in continuing education classes that I teach across the country titled “Unbelievable Fun with Pollution Exclusions”), fewer than 1 percent of commercial buildings purchase EIL coverage. This means that commercial properties produce a lot of environmental claims that could be covered under EIL policies if those policies were purchased. It also means that 99 percent of commercial buildings are underinsured for claims associated with contamination.
Why the poor market penetration? Relatively inexpensive environmental insurance on commercial property has been available for over 30 years. The poor market penetration of EIL insurance in the commercial property space can be explained by the general breakdown in the insurance distribution channel for environmental insurance products in that class of business. Most of the insurance agents and brokers who work in the commercial property market have not been trained on the effects of pollution, fungi, and bacteria exclusions, and, therefore, they cannot effectively convey the need for environmental insurance to their customer base. Without first establishing a need for EIL insurance based on the predictable effects of pollution/fungi/bacteria exclusions, insurance buyers do not perceive a need to purchase EIL coverage.
In my experience as a wholesale insurance broker, EIL insurance on commercial property has little market penetration because most commercial property owners have never been presented with enough information on the effects of pollution/mold/fungi/bacteria exclusions within their property and liability insurance policies to make an informed decision on the purchase of EIL insurance. The constraint in the marketplace driving poor market penetration is not the price of EIL insurance; EIL policies will be purchased by informed property owners and managers.