Use of Environmental Insurance Can Have Favorable Impact When Businesses Seek Loans, Sell Property
Will businesses be required to purchase environmental insurance if they want a real estate deal to close? It is more and more likely, and shouldn't be a surprise when they realize the advantages environmental insurance can bring to a business deal, according to ECS Underwriting, one of the nation's leading providers of environmental insurance.
ECS has seen a remarkable increase in interest from businesses seeking environmental insurance because of lease, purchase and loan requirements, according to Scott Britt, vice president of ECS' Industrial and Commercial Facilities Business Unit. These requirements, he said, are being put in place by real estate management firms, lenders and others.
"Because of the availability, affordability and flexibility of pollution insurance today, it's often a wise risk management decision for financial institutions to institute such requirements, especially since it is more affordable than ever for their clients," said Britt.
"When businesses purchase an environmental insurance policy in a real estate transaction, they can name their lender, which is attractive to the institution granting the loan," explained Britt. "The purchase of insurance can be an effective tool in closing a real estate deal by easing the buyer's concerns about the environmental liability posed by the property. Upon the completion of the transaction, an environmental insurance policy can be transferred to the new property owner, while it still provides liability protection for the seller well into the future," Britt added.
A recent report by Moody's Investor Services, which discussed the favorable impact environmental insurance can have on securitized commercial mortgage pools, is likely to spark additional interest from lenders. The report, "CMBS: Moody's Approach to Secured Creditor Environmental Insurance," pinpointed the importance of environmental insurance for real estate transactions.
For industrial and commercial businesses, the most frequently purchased insurance program is the Pollution and Remediation Legal Liability (PARLL) policy. The PARLL policy provides historical and ongoing coverage for on-site and off-site third-party property damage, bodily injury, remediation expense and legal defense expense under one policy for sudden and gradual pollution conditions at or from covered locations. ECS also offers a Real Estate Lenders Policy (RELP) that provides first- and third-party pollution coverage and mortgage impairment coverage to secured creditors, banks and financial institutions involved in commercial mortgage lending for properties.
According to Moody's report, the advantages of using environmental insurance are many and include:
• Environmental insurance covers environmental conditions that may occur as a result of changes in environmental laws or regulations.
• Insurance covers future occurrences, changes in use of the property and errors that may occur in the due diligence process.
• An institution has more recourse opportunities against an insurance carrier than it does against an environmental consulting firm that performed due diligence activities.
• An institution can transfer the bulk of its environmental risk to an insurance carrier, whereas in the due diligence process environmental risk is still retained by the institution.
N/A, is an underwriting manager providing integrated environmental risk management solutions to business and industry worldwide. ECS meets the diverse needs of its customers through insurance, risk control and claims management. XL Capital (NYSE: XL), rated A+ by A.M. Best, is a leading global provider of insurance, reinsurance and financial products.