In The Public Eye: Environmental Concerns on the Rise Within Public Entities

Intro (00:00):
Welcome to the Alliant In The Public Eye Podcast, a show dedicated to exploring risk management topics and challenges faced by today's public sector leaders. Here is your host, Carleen Patterson.

Carleen Patterson (00:18):
Welcome back everyone, to another episode of In The Public Eye. It is September, we're looking at the end of the year. We have gotten past a lot of the renewals that our Public Entity clients have, most of them are July 1. So, we're circling back with some of our Specialty Product Experts to talk about some of the emerging risks and the challenges that we saw with those recent renewals. So today we are going to be focusing on pollution and the specific challenges with that, and so we have invited Katrina Seese to the call to talk about that. How are you doing, Katrina? And welcome to the call.

Katerina Seese (00:58):
I'm good, Carleen, thank you.

Carleen Patterson (01:00):
So, before we get started, I know you've been with Alliant for about three years, but could you tell us a little bit about yourself and how you ended up as an environmental specialist?

Katerina Seese (01:12):
Sure. So, I began my career on the East Coast, in New York City, with a carrier, where I handled environmental claims. And then for about the last 12 years, I've been on the brokerage side, specifically and solely, where I handle pollution liability and contractors’ pollution liability policies and coverages for our various clients.

Carleen Patterson (01:33):
So, after we just worked through all of the July 1 and some of our other bigger renewals, what is the state of the market for environmental liability?

Katerina Seese (01:43):
So, the state of the market for environmental liability specific to Public Entity, we've got a relatively hard market. So, unlike any other segment, the pollution marketplace, we're seeing flat rates. We're seeing multi-year terms still up to 10-years available. But within Public Entity we saw anywhere from 5% to 40% rate increases, 40% on a lot of the larger pools, and we saw policy terms reduced. We had some public entities that had three-year policy terms that were reduced now to annual terms. And we've seen water districts and large pools representing various municipalities, cities, counties, really be hit the hardest by these rate increases, and these policy term reductions.

Carleen Patterson (02:33):
So, you mentioned some of the pools, you saw some pretty significant increases. What are the challenges around underwriting a pool?

Katerina Seese (02:42):
Yeah, so the biggest challenge is really the lack of underwriting information. So, oftentimes we're going out to market with just a schedule listing the various cities and counties. Sometimes we have a schedule of values, but as far as getting any underwriting information or environmental testing with regards to soil groundwater, we often don't have that information. So, the carriers are really, you know, are underwriting based off of very little.

Carleen Patterson (03:14):
Yeah, yeah. So, when you're looking at that 5% to 40%, are you seeing it more where the individual, like single exposure entities are getting better results than maybe some of the larger entities? I guess, it goes back to data, right? If you have the information and underwriters can get their arms around it, they're going to get a better response from the marketplace, right?

Katerina Seese (03:37):
Yes, absolutely. We are seeing better rates on a standalone policy, but it's all relative. You know, when you're part of a large pool, you're getting an incredible rate. When you're moving to a standalone policy, you can expect to be paying a lot more. You're also getting separate dedicated limits, which you don't have in a pool.

Carleen Patterson (03:58):
So, what about from an operational standpoint? You know, talk about underground storage tanks and aboveground storage tanks. How are they typically treated if you're buying an environmental policy? Are they separate, are they included or is there an advantage to doing either one?

Katerina Seese (04:16):
Yep. So above ground storage tanks are covered on a blanket basis. Typically, the carriers don't request any underwriting information with regards to above ground storage tanks, that was actually one of the changes that we saw this year because of the increase in claims on some of the large pools, we saw carriers request information, they wanted to know content, size, how old these aboveground storage tanks were. This was very unusual this year, we've never seen carriers request that kind of information. For underground storage tanks, these are typically offered if they're scheduled only and in order to be able to get coverage for underground storage tanks, we always need to provide the age of the tanks, the contents, the size, the containment. So, whether there's a double wall or you know, just information on how that tank is contained.

Carleen Patterson (05:11):
So, with an underground storage tank, you mentioned the age, is there an industry standard for what's a good age for a tank and what's not?

Katerina Seese (05:20):
Yeah, so 25 years or older is not a good age for a tank. This is the age where we typically see tanks being pulled or a recommendation that they be pulled just because of their age and the tank breaking down. We still can get coverage for a tank that's 25 years or older. Some carriers will impose a higher deductible, sometimes starting at 250,000, sometimes as high as 500,000 or a million, to tanks over 25 years old, and there are some markets who will not cover them all together.

Carleen Patterson (05:56):
I was talking to one of my clients the other day and they were talking about their storage tanks and the risk management department was recommending some things be done and they said: Well, is there a vendor who can come in and tell us we have to replace them? So, is there a vendor that would come in and say, yes, this has to be replaced? I mean, get the tank tightness test, they’re still okay, but they're getting up in age and you know, the counties are strapped for budget.

Katerina Seese (06:28):
So, my recommendation is the tank tightness testing, and that will indicate whether or not there's any kind of leakage. If there isn't and budget is of concern, I would take that tank tightness test that shows that there isn't any leaks or any issues with the tank. And I would try to take it to a market specifically who will look at tanks over 25 years. We see a lot of our clients who will, up until the point where they can't get coverage, that's when they pull the tanks. But as long as they can keep getting coverage and keep finding a market who will look at it, sometimes that's as long as they leave the tank in the ground. I do have tanks that are over 30, 35 years old that we have a few markets who will cover as long as they have favorable tank tightness testing. And then, you know, the year that they don't have that anymore, that's usually the year that they pull the tank and find the money in their budget to replace it.

Carleen Patterson (07:28):
That's, so my answer to my client was, well, the vendor that would tell you to replace it is when we can no longer insure it. There you go.

Katerina Seese (07:36):
Yes, exactly.

Carleen Patterson (07:41):
Ok. So, the pricing is going up. Any recommendations to risk managers when it comes to looking at environmental policies as far as how to get better results in the market?

Katerina Seese (07:52):
Sure. I think, you know, a lot of the claims were surrounding mold. So, managing any water intrusion issues or acting on those fast, that's a big way to mitigate mold.

Carleen Patterson (08:05):
So, it’s actually mold for their first party coverage. So, it's for their buildings?

Katerina Seese (08:11):
Correct, for their buildings, you know, typically starts with the cleanup, and then can evolve into bodily injury claims. So, you know, people that are then exposed to the mold. So, if you can mitigate it at the point of water intrusion, then you don't have mold growing and then you don't have people being affected by breathing in that mold. So that would be a big recommendation. Another challenge that we really saw in the marketplace was coverage for PFAs. And this really is found in drinking water and in soil. So, we've seen these constituents become widely excluded, and the only way to get coverage for these contaminants is by doing phase one and phase two intrusive testing. So, this would be actually testing the soil and groundwater.

Carleen Patterson (09:04):
You said PFA, right? So, insurance industry, we love our acronyms. So, could you say what a PFA is?

Katerina Seese (09:14):
Yeah, sure. So PFA stands for per-and polyfluoroalkyl substances. It's a group of chemicals that's used to make coatings and products that resist heat, oils, stains, grease, and water.

Carleen Patterson (09:28):
Okay.

Katerina Seese (09:28):
So, if you think of like your household products, we find it in makeup and stain resistant sprays that you would have in your laundry room, non-stick pans are a big one, and then we see it especially show up in firefighting films. So, with the increase in wildfires across the nation and just fires in general, whether that's at an airport or you know, in a building, the firefighting film contains these PFAs and we're seeing it turn up in a lot of resources, water sources, as a result of that.

Carleen Patterson (10:05):
Okay. So, one of my clients had, you know, their liability carrier, they put a specific PFA exclusion on the liability. So how can a public entity protect itself or, you know, what are the exposures and the types of claims they could get and, I guess, how would you recommend they protect themselves?

Katerina Seese (10:28):
Yeah, that's a good question. So, it is very hard to protect yourself from this contamination, especially if you're not using these chemicals. If you are using these chemicals on site, which most public entities are not, but if you are, I would just say stop using them. But because most public entities are not using these chemicals on site, it's really affecting them through third party migration, or it's turning up in water sources. So typically, it has nothing to do with your operations on site, but maybe a manufacturing facility that is upgrading or it's a result of a fire that you had. And the fire department comes in with this firefighting film, if it's an airport, typically airports have this film on site that contains the PFAs. So, there are alternatives that can be used now, but unfortunately, it's still pretty widely used.

Carleen Patterson (11:26):
Okay, I had no idea it was in our non-stick pans. So, I know you're working with our team to write an article on it, so everybody stay tuned for that in our In The Public Eye newsletter that will be coming out in a couple months. So, we can talk more about that. But so PFAs, kind of an emerging risk, something that there's a lot of heightened awareness of. Anything else, you know, as we look toward the future that our clients and risk managers should be aware of or talking about, or even when they're looking at contracts from some of their vendors, things that they should be looking at requiring?

Katerina Seese (12:05):
Yeah, so something new this year that we haven't seen in the past were exclusions for wildfires and oil and gas producing wells. This came out of several claims that involved offshore oil and gas wells. We had cities, coastal cities, that found torballs washing up on the beach. And some of the markets responded in a way that they wanted to be able to further evaluate this and found that they couldn't get any underwriting information for offshore oil and gas producing wells. This wasn't something that the city or county could provide. And so, what they deemed a challenge was being able to, one, know that they existed or were in the vicinity of an oil and gas producing well, and, you know, how do they manage this risk going forward? And really, they don't have any control over this. So, we've started to see exclusions. This does pose a challenge in that we don't have it as a backstop or safety net if you can't find the operator, the oil and gas operator, if they were to file bankrupt because of a huge release or a spill. So, this is something that could be much better obtained on a standalone policy. It is getting increasingly difficult to get for large pools.

Carleen Patterson (13:32):
All right. So, if you're in Texas, Louisiana, Mississippi, those are the, like the Gulf States and anywhere where there's offshore.

Katerina Seese (13:41):
Yeah, but all up and down the coast of California as well. So, that's actually where we saw the claims come in. But yeah, any coastal city.

Carleen Patterson (13:52):
So, Katrina, really want to thank you for being with us today. It's a lot of great information and just so everybody knows, she is available if you have any questions or anything, but we really appreciate you being here. And as we keep going from 2022 and beyond, we are always looking for innovative ways to help solve our public entity risks. So, thank you for being here, Katrina, and everyone, stay tuned for the next edition.