Over the last four years, the percentage of clients purchasing pollution legal liability (PLL) and contractors pollution liability (CPL) policies has increased—nearly 10 percent more PLL policies were sold in 2011 compared to 2009—although the amount of limits purchased generally declined. Average PLL limits were $11 million per program in 2011, a decrease from the peak of $12.7 million in 2008. For CPL programs, average limits purchased were $7.4 million last year, down $3.5 million from 2010.

There are many likely reasons for the decline in overall limits. Clients are purchasing single-year policies over multi-year policies in increasing numbers. Since environmental insurance policy limits do not reinstate annually, lower limits on a year-over-year basis may be adequate for most clients. Additionally, as the environmental insurance marketplace has evolved, so has loss experience and claims activity data. Insureds and insurers alike may use this information to gain a better understanding of limit requirements, allowing for more appropriately structured programs.

In terms of CPL programs, limits are heavily influenced by contract value. It is likely that the economic environment of the past few years has contributed to a decrease in contractor project values, which are the primary basis for contractor policy limits. Therefore, as project values declined, so too have required CPL limits. With increasing frequency, companies are requiring their contractors to carry environmental insurance—regardless of the contractor’s level of environmental exposure. This increased demand for environmental insurance by entities with lower environmental risk profiles has resulted in the purchase of policies with lower limits that are of a shorter duration.

Overall, insureds are more carefully considering how they deploy their insurance dollars in response to current economic conditions. As a result, this caution, coupled with the factors above, has contributed to the trend of declining limits and deductibles.

Since 2008, the average deductible for pollution legal liability programs has remained relatively constant at around $350,000. In contrast, contractors pollution liability average deductibles have decreased considerably, from a high of $304,000 in 2008 to $121,000 in 2011. There are likely a number of contributing factors:

• The increased competition present in the marketplace is driving aggressive pricing and coverage availability. As a result of this competitive environment, carriers are often willing to alter terms and conditions, such as accepting lower deductibles.
• In some instances, carriers may be willing to reduce deductibles on a client’s program in addition to offering other coverage enhancements such as mold and/or business interruption coverage, as a means to compete in the marketplace in a way that does not impact their premium book.
• The economic environment continues to influence insurance buying behaviors. Insureds are less willing to absorb higher deductibles and are more likely to purchase programs that offer lower deductibles or self insured retentions (SIRs).

The average price per million (PPM) of limits purchased declined for both pollution legal liability and contractors pollution liability, although more so for PLL programs. Insureds paid an average of $15,700 per million of PLL limits purchased in 2011, down from $18,000 in 2008, a 13 percentage point decrease. The average CPL price per million declined from $14,800 to $13,900 during the same time period. This is caused in part due to increased competition in the environmental insurance market as a result of the number of carriers that entered the marketplace in the last four years. Additionally, there has been a decrease in the number of policies placed related to mergers, acquisitions, sales, and divestitures, which typically require longer term policy periods. A secondary contributor is the fact that more policies are being written on a single-year basis rather than a multi-year basis.