| From: | lschnapf@aol.com | ||||||||||||||||||||||||||||||
| Date: | 4 Jun 2007 22:40:02 -0000 | ||||||||||||||||||||||||||||||
| Reply: | cpeo-brownfields | ||||||||||||||||||||||||||||||
| Subject: | [CPEO-BIF] Re: Brownfields Digest, Vol 34, Issue 5 | ||||||||||||||||||||||||||||||
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Sue,
I maintain that we are talking about different kind of risks. The upside on a small site is generally rather limited. The costs may go from $1MM to $2MM or $3MM. The risk is high to the insurer because it did not collect enough premium.
My original point was that Peter's analogy to the experience of carriers with smaller sites is not an adequate barometer to say that smaller sites pose greater risks. It may be that estimates for smaller sites tend to more inaccurate and therefore the frequency of the insurer having to pay more that it has collected in premiums may occur more often. But those increases are only significant in in terms of tje premium collected. For at an individual site, a developer will face greater ABSOLUTE risk. I would submit that a developer who sees its environmental costs go from $5MM to $20MM has been exposed to a greater amount of risk that an carrier whose cost cap insurance was exceeded by a $1MM. Larry Larry Schnapf
55 E.87th Street #8B/8C New York, NY 10128 212-876-3189 home 212-756-2205 office 212-593-5955 fax www.environmental-law.net website -----Original Message----- From: brownfields-request@list.cpeo.org To: brownfields@list.cpeo.org Sent: Mon, 4 Jun 2007 3:00 pm Subject: Brownfields Digest, Vol 34, Issue 5 Send Brownfields mailing list submissions to
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Today's Topics:
1. Re: BCP Data Followup and Self-Directed Cleanups
(SusanNeumanEsq@aol.com)
2. RE: BCP Data Followup and Self-Directed Cleanups
(Bruce-Sean Reshen)
3. Re: BCP Data Followup and Self-Directed Cleanups
(SusanNeumanEsq@aol.com)
Attached Message
On the issue of cost overrun insurance for small sites, I will have to weigh in more on the side of Peter than Larry. It begs the question to say that the reason for insurers' reluctance to provide the coverage is inability to obtain sufficient premiums to cover the risks. The reason insurers are refusing to cover overruns over small dollar value cleanup costs or, in a move that has the same effect, are charging premiums that eliminate small sites (e.g., $350,000 as a minimum premium) is not so much in the cost overrun risk itself but in the insurer's internal costs for underwriting the risks. Underwriting the risk at a small site takes at least as much time, effort, and analysis (including Monte Carlo modelling) as underwriting large sites, so insurers have to charge premiums that are relatively too high. Small sites typically are less well characterized and the engineering information they come with is less complete than that of large ones, and that makes the underwriting process even more difficult or impossible.
Sue
Susan Neuman, Esq., Ph.D.
Environmental Insurance Agency, Inc. 138 Chatsworth Ave. Larchmont, NY 10538 914-833-5100 (phone) 914-833-5102 (fax) www.enviroinsurance.com See what's free at AOL.com. Attached Message
Susan,
Based on several degrees in statistics and econometric theory, I can assure you that the Monte Carlo simulations can be performed almost instantaneously unless, of course, you are referring to those insurers who are still utilizing abacuses. Once you have established the assumptions, modern computer technology permits you to perform the Monte Carlo simulations without any major cost except for the analysis and interpretation of the results.
It is clear that insurance companies do not want to bother underwriting small sites since the premiums are not commensurate with the time expended, while most of the environmental and business risks are undiminished by the small size of the expected profits. Note that insurance companies will still underwrite small sites where a major client provides other business. They are the ultimate rational player in these markets.
Bruce
Bruce-Sean Reshen
The MGP Group
733 Summer Street – Suite 405
Stamford, CT 06901
p. (203) 327-2888, X 18
f. (203) 327-2999
c. (917) 757-5925
-----Original Message-----
From: brownfields-bounces@list.cpeo.org [mailto:brownfields-bounces@list.cpeo.org] On Behalf Of SusanNeumanEsq@aol.com Sent: Sunday, June 03, 2007 5:34 PM To: LSchnapf@aol.com; brownfields@list.cpeo.org Subject: Re: [CPEO-BIF] BCP Data Followup and Self-Directed Cleanups On the issue of cost overrun insurance for small sites, I will have to weigh in more on the side of Peter than Larry. It begs the question to say that the reason for insurers' reluctance to provide the coverage is inability to obtain sufficient premiums to cover the risks. The reason insurers are refusing to cover overruns over small dollar value cleanup costs or, in a move that has the same effect, are charging premiums that eliminate small sites (e.g., $350,000 as a minimum premium) is not so much in the cost overrun risk itself but in the insurer's internal costs for underwriting the risks. Underwriting the risk at a small site takes at least as much time, effort, and analysis (including Monte Carlo modelling) as underwriting large sites, so insurers have to charge premiums that are relatively too high. Small sites typically are less well characterized and the engineering information they come with is less complete than that of large ones, and that makes the underwriting process even more difficult or impossible.
Sue
Susan Neuman, Esq., Ph.D.
Environmental Insurance Agency, Inc. 138 Chatsworth Ave. Larchmont, NY 10538 914-833-5100 (phone) 914-833-5102 (fax) www.enviroinsurance.com See what's free at AOL.com.
Attached Message
Bruce,
Perhaps I shouldn't have mentioned Monte Carlo. My experience is that, in order to properly underwrite cost overrun coverage, you essentially have to redo the whole process of estimating the cleanup costs based on very detailed information about costs and their relation to an approved remedial plan. Insurers frequently rely on outside engineering companies to do the re-analysis, which is expensive as well as time consuming. Underwriters previously used to provide the coverage for small sites under site pollution liability policies using a high deductible -- this is called "embedded cost cap coverage" -- but they are no longer allowed to do so by reinsurers because of the many hits that were taken under such policies since underwriters were providing the coverage based on insufficient information. There is one company, AIG, that will provide embedded cost cap coverage but only in limited situations for certain clients and because AIG does not have to put all its losses under its reinsurance.
Basically -- and perhaps I should have made this clearer -- I just think that most cost cap underwriters would disagree that cleanups at large projects pose greater risks than those at small ones. They would say that, at least for them, the risks are just as high, if not higher because the small sites are seldom as well characterized as the large ones yet can be just as complex. There is an answer to this problem, however; increasingly, insureds are obtaining guaranteed fixed price remediations to cover cost overrun risks, and purchasing SPL policies to cover the other risks.
Sue
Susan Neuman, Esq., Ph.D.
Environmental Insurance Agency, Inc. 138 Chatsworth Ave., Suite 2 Larchmont, NY 10538 914-833-5100 (phone) 914-833-5102 (fax) www.enviroinsurance.com See what's free at AOL.com. _______________________________________________ Brownfields mailing list Brownfields@list.cpeo.org http://www.cpeo.org/mailman/listinfo/brownfields _______________________________________________ Brownfields mailing list Brownfields@list.cpeo.org http://www.cpeo.org/mailman/listinfo/brownfields | |||||||||||||||||||||||||||||||
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