Aon Finds European Risk Managers Underestimate Environmental Risk

Aon’s Global Risk Management Survey 2009 has found that “environmental risk ranked lower as a concern in Europe than any other region – despite the introduction of the EU Environmental Liability Directive (ELD).”

Aon’s report is timed to coincide with the Federation of European Risk Management Associations (FERMA) conference in Prague, which opens on the 4th of October. Aon plans to present the conference with a warning, urging “European firms to wake up to the reality that this legislation could see companies held liable for unprecedented costs for clean up and restoration of environmental damage.”

Dr. Simon Johnson, Aon’s environmental director for UK and EMEA, pointed out: “There is a common misconception that the ELD is just about ongoing operational pollution issues. The reality is the ELD significantly increases liability in the EU for operators that cause environmental damage, regardless of how that damage is caused. The fact that environmental risk ranked 32nd as a concern in the survey is worrying because risk managers are seemingly lulled into a false sense of security, believing they have no exposure or their pollution strategies are under control.

“This ignores exposure to the impact an unpredictable one-off event on the environment could have on the balance sheet. It’s about preparing for the low frequency, high severity event by having insurance in place that covers all the risks, damages and losses that could occur.”

Aon posited a hypothetical example wherein a riverside factory operation catches fire due to an electrical fault. When the debris enter a local river the factory’s owners may be held liable for environmental damages.

In addition Aon notes that “while there is a minimum legal transposition of the ELD, some countries have taken this further by introducing compulsory financial security arrangements for the riskiest operators in industries such as chemical production and waste management. Spain has set the precedent and the Czech Republic – FERMA’s host country this year – is set to follow in 2012.”

Dr. Johnson added: “Risk managers need to review the ELD and their operations in relation to their insurance programs as there will be gaps. US companies with European subsidiaries are becoming increasingly aware of their potential exposures and in turn we’ve seen a higher take up for environmental liability insurance. We’re encouraging European risk managers to adopt a similar strategy in protecting against uninsured environmental damage.”

Source: Aon – http://www.aon.com

Topics Europe Pollution Aon Risk Management