Ascot Environmental Head: New Risks Include Forever Chemicals, Microplastics, Cyber
The environmental insurance market continues to evolve and grow, said John O'Brien, head of environmental for Ascot Group. He spoke with Insider Engage at the RIMS 2022, conference in San Francisco.
You started the environmental operation for Ascot in 2019. Right before COVID? What was that like?
It was interesting. We launched in June and by March of the next year 2020, when COVID was starting to hit, all my underwriters, left the office and went home. I remember talking to my boss at the time, and he said, what do you think is going to happen? I remember saying, if it goes to August, this is going to be a disaster.
As it turns out we grew the business, we doubled — almost tripled the business that year. And then we doubled it the year after. So there's a lot of unintended consequences that I think came out of COVID.
So aside from the tragedy, and the loss of life we were able to connect with brokers and clients in a much more direct way. And people were really responsive.
I would tell my underwriters, if you call a broker, they're probably a little lonely, and they're probably going to answer the phone. And they did. So we actually did really, really well through that through that whole time.
And now we're transitioning to a couple of days in the office, a couple of days out, starting to see people. So I think that balance is the approach that we'll kind of run with until something else happens, but a lot of positive things came out of it.
So getting into the meat of environmental emerging issues, PFAS those forever chemicals, what are you seeing there? How is the market responding?
So PFAS is PFOS, PFOAs, PFOAs, all carbon fluorine type of chemicals. The market is struggling, which I think happens with any kind of emerging contaminants. There is a lot of science and a lot of distraction in the marketplace. There is the EPA with some standard at 70 parts per trillion, and there are different states with one to 14 so there's uncertainty in what the measure is.
But generally speaking, whether it's 70, or 14, or one, its parts per trillion, it's really small. So there's a risk, and carriers are trying to figure out do I think I can underwrite this, if I don't, I'm going to just exclude it. Is it something I can get my arms around on a class business? We look at it more on a class business, so we look at it from the standpoint of, if it's a terminal, and it's been there for a while and they've had a couple fires, there's a good chance that there's they use PFOS on it.
The loss isn't really going to come from someone coming in and saying you had a fire 20 years ago, we want you to clean up the PFOS, it's going to come from the next fire. If they use PFOS, or AFFF when they go to clean up the site, they're going to find the historical AFFF, and that's what magnifies the type of loss.
The losses can be severe. Terminal loss, we have oil and other contaminants that get out, that could be $6-$7 million, but the PFOS could be $60-$70 million. So it's this new uncertainty that's been piled on.
We look at a lot of the public information available, we look at different industries and then we try to get in touch with the insured. No one knows their business more than the insured. And we try to encourage brokers to get the insured to begin to start thinking about this because underwriters are going to start asking the questions.
Are microplastics a similar situation? You think they can be underwritten?
I think so. I mean, they're less of an issue just because they have similar qualities, but they're not as headline right now. They both have a unique way of getting into the food system. The things underwriters have to wrap their head around on these exposures is just where is it going to come at you. And I just talked about the obvious places for PFOS to come after you. But PFOS goes through the sewage system, goes to a sewage treatment plant, they have sludge, the sludge goes on farmer's fields, it gets into the field, it can then get into the stream or get into the food.
Those aren't things that most people are thinking of from the jump. They're like it's a fire, it’s this — and that's going to be the emerging thing. That will be the emerging thing people will have to deal with it. It’s the same with microplastics. It's the same kind of scenario. They're both bio accumulators, they're both not good for you. It's a big products issue though, on the markets' [with] combined form products where they do geo, pollution and products — there's a lot more exclusions being put into those.
How about cyber insurance, is that something you consider when writing environmental?
Cyber is one of those things that no one was really thinking of for at last the least 25 years. There’s lots of headline on cyber, lots of headline on cyber insurance and the rates and the losses. Not much on the pollution — but it's something that's emerging.
A pollution policy, generally speaking, doesn't have a trigger based off of the cause. So if there's a pollution event, whether someone backs a truck or forklift into a tank, there is no forklift exclusion. And just like that, there's no cyber exclusion, so the policy is silent. Therefore, it's an exposure.
I haven't seen too many losses but it's something that teams are starting to work on. Some carriers are excluding it for certain classes of business, others are trying to underwrite around it. We're doing a combination of the two. If we think it's a highly exposed risk, with no controls, which there just aren't any of those, then we would probably think about an exclusion. But most insureds have good programs.
For what we do it's a little bit different than the regular cyber team because ransomware, and things like that — those are external systems where the attacks come in.
Most of the systems that we're worried about are the control systems, which are typically not available from an online system. We think there's a proxy so we're working with our cyber team.
At Ascot, they have a vendor we work with to try to find a proxy for whether or not this account has great outside controls — they probably have pretty good inside controls — and then we supplement it with questions. It’s like a Prius, you drive a Prius, you should be a good driver. So generally speaking, that's what we what we do.
You mentioned your 30 years in the industry, when you first started, there were three environmental markets and today, there are 60?
There's a lot more than when I started, when I started. I started at AIG in 1992-93. There was ECS, which was writing on Reliance National paper, they were an MGA. Then there was Zurich that started right after I came on board. And now there's 60 markets. Underwriters in the market, people at these kinds of events sometimes will say that's a lot of mouths to feed, lots of companies out there, too many people in the marketplace. I don't really subscribe to that. I'm not excited when a new market comes online. I'm not thinking I'm really pumped on that. But I'm also not thinking that it's the end of the world.
There are markets that just deal with small contractor/consultants, they're awesome at that. That's not a thing that I can provide that service for and a lot of carriers can't, and so they serve a great purpose. On any given deal that I'm working on there's four, maybe five markets, and those are all suited to deal with that specific risk.
Brokers now are smart enough and have enough experience that they know Ascot likes this kind of risk, Ironshore likes this kind of risk, this is not a risk for that market. They'll put the best markets in a position to provide a quote and they do a really good job of that. If there's a high limit deal, $100 million, $200 million, then you'll see more markets come in and provide access. A big change in this market I've seen too is capacity has moderated or stays kind of flat for carriers like $25 million.
When I was at AIG, we had $150 million at one time, which was kind of crazy. Now there's a very, very significant excess market. So brokers can build $300 million towers, $400 million towers. That could not happen in 1993, 1994, even in the 2000s. And those markets are now writing straight excess. So there's a lot more flexibility for clients or brokers and I think that's a good thing.