Evolving environmental regulations are creating complexity for underwriters of site-specific environmental liability insurance, leading to ongoing challenges in risk assessment, pricing, and capacity. The fluctuating policy landscape, marked by shifts between stricter environmental measures under the Biden administration and pushes for deregulation under Trump, is creating uncertainty, according to Tanya Andolsen, president of Argosy Risk Specialists.
“It’s been a constant back-and-forth; we went from Trump to Biden and now back to Trump, and each administration has vastly different views,” Andolsen said. “The new EPA head, Lee Zeldin, has already signaled a shift – saying he doesn’t want to ‘suffocate the economy,’ which suggests a plan to roll back regulations in favor of business growth and increased energy production.”
Will Enforcement Weaken?
Underwriters previously factored a stricter regulatory environment into their risk assessments when considering site pollution liability coverage. The current shift toward loosened regulations, however, may create ambiguity around legal standards for environmental protection, making it more difficult to define potential liabilities.
This uncertainty complicates the process of accurate risk evaluation and pricing.
“We’re also seeing cutbacks at the EPA, including cancellation of grants, axed programs and staff elimination,” Andolsen said. “I would assume that as a result it will be harder to monitor environmental cleanups. Without the manpower, oversight and enforcement may be significantly reduced.”
Ultimately, weakened enforcement and insufficient oversight could lead to larger losses for insurers, prompting them to increase their focus on policyholders’ internal risk management and rely on loss control services to help mitigate exposures.
“It will be interesting to see how that impacts the environmental insurance market over the next 12 to 24 months – especially in areas where active remediation projects are underway,” Andolsen noted. She added that underwriting appetite has already declined over the past two years.
“Many carriers were already pulling back coverage in high-risk sectors such as fossil fuel extraction, chemical manufacturing and drilling operations,” she said. “PFAs – so-called ‘forever chemicals’ – are also a continuing concern. Insurers are approaching these risks with caution, largely because there’s still a lot of uncertainty around what future regulations will demand.”
Growing Uncertainty
Regulatory uncertainty is expected to persist, which is likely to cause insurers to continue adjusting policy terms and conditions to limit their exposure to perceived risks. In addition to tightening coverage and increasing deductibles, brokers and policyholders are facing a more pressing challenge: shrinking market capacity.
“What I’m seeing with many of my renewals is early notice from carriers that capacity is being reduced,” Andolsen explained. “Where a carrier may have previously offered $10 million or $15 million in limits, they’re now capping coverage at $5 million.”
This shift is pushing brokers to start the placement process earlier and often necessitates stacking limits by involving multiple carriers.
“Carriers just don’t want to put up as high of a limit,” Andolsen said. “And when you need to bring in multiple insurers to build that capacity, it often drives the overall rate higher.”
Andolsen also noted that the ability to secure coverage is being impacted by new exclusions.
“Some exclusions are now mandatory across the board from every carrier,” she said. “It’s crucial to inform the insured early in the process, so they have time to address any concerns from a risk management perspective outside of insurance. For example, with PFAs, if the exposure comes from having those chemicals in fire suppression systems, it may be a wise move to switch to a system that no longer uses them.”
Tightening Terms
Focusing on site pollution policies, Andolsen anticipates a continued tightening of terms.
“I think we’ll see higher deductible requirements for certain types of exposure, likely with a minimum retention needed to even consider offering coverage,” Andolsen said. “What’s happening is there’s a higher frequency of catastrophic events and increased claims activity. In the past, environmental claims were seen as high severity but low frequency. Now, we’re dealing with both high severity and high frequency.”
Policyholders should expect shorter policy terms moving forward.
“A decade ago, 10-year policies were common. Five years ago, five-year terms were easy to secure,” she said. “Now, many carriers limit policies to three years, or even just one year in some cases. This shift stems from growing uncertainty – insurers want the flexibility to reassess risks annually, accounting for changes in regulations, climate, and overall exposure. Essentially, they want to re-underwrite coverage more frequently to ensure it still makes sense for them.”
For brokers, shorter policy terms mean more frequent work, which also carries a relationship benefit.
“There are two perspectives; with a 10-year policy, you earn revenue once and don’t see it again for a decade (if the policy renews). More frequent renewals do increase the workload, but they also create a steadier, more consistent revenue stream,” Andolsen said.
