Heavy Metal in the Water
Thanks to nationwide media coverage of the “orange river” acid mine drainage (AMD) spillage at the abandoned Gold King Mine in Silverton, Colo., the health of the nation’s waterway system attracted much more attention in the past year.
But, in fact, according to the federal Environmental Protection Agency, AMD is the greatest danger to the waterway environment in the United States on an ongoing basis.
“Acid mine drainage is a huge problem,” said Sharon, Pa.-based Rod Taylor, managing director with Aon’s environmental group.
“It’s not just a matter of current mining operations, which now have come under environmental regulations with respect to wastewater discharges, but drainage from abandoned mines that were explored, developed and worked out over the last 125 years in this country with little regard to environmental impact.”
There are hundreds of thousands of abandoned mines in the United States, located primarily in 12 Western states and Alaska where gold, silver, copper, zinc and other precious minerals were mined.
In addition, coal was and is extensively mined in the East, Midwest and the South presenting similar problems, experts said.
“AMD is a problem in streams, rivers and lakes where mineral deposits and mining are prevalent,” Taylor said. It is caused when water flows over or through sulfur-bearing materials, forming solutions of environmentally harmful acidity.
“The parties that are responsible in today’s environmental regulatory world would obviously be the mine operators,” he said.
“The Department of Interior’s estimate of the cost for cleaning up the estimated 500,000 abandoned mine sites in the U.S. range from $32 billion to $72 billion.” — Rod Taylor, managing director, Aon’s environmental group
But while the mine owners are required to post evidence of financial responsibility for mine closure and post-closure care, the amounts required have proven to be inadequate, Taylor said.
“Operators and owners of abandoned mines often are no longer in business,” he added.
“Some that are still around are not financially capable of responding to the problem. This leaves the cleanups and closure for tens of thousands of abandoned mines to taxpayers and government agencies.”
To focus on the daunting problem in the U.S. — in addition to state agencies — the federal government has four agencies devoted to dealing with AMD: the EPA, the Department of Interior’s Bureau of Land Management, the Interior Department’s Office of Surface Mining Reclamation and Enforcement, and the Department of Agriculture’s Forest Service.
Collectively, these agencies spent $2.6 billion from 1997 through 2008 on hardrock mine reclamation, Taylor said.
By itself, the resources that the EPA has to devote to the AMD problem are grossly inadequate for what the task will cost, Taylor said.
“The Department of Interior’s estimate of the cost for cleaning up the estimated 500,000 abandoned mine sites in the U.S. range from $32 billion to $72 billion,” he said.
“If the EPA’s spending rate of $221 million a year was maintained, the abandoned mines could take 325 years to clean up.”
Taylor noted that insurance for AMD might be available for people who are impacted downstream.
“So if you were operating a marina and if there was a chance for a release of AMD from a mine upstream you could purchase environmental insurance as the owner of a site that was affected by AMD,” he said.
“Or you could purchase insurance that could cover you in the event operations were impacted,” Taylor added. “Or if you’re a water delivery system, you might consider insurance if that system had its source in rivers where AMD existed.”
Overall, said Jim Vetter, a Salt Lake City-based managing director with Marsh’s environmental practice, getting gradual pollution coverage for mines is difficult because of the risk perceived by the markets for the industry class as a whole.
“That said,” noted Vetter, “there are some markets that have appetite for mining risks and could cover off-site pollution conditions such as cleanup and third-party bodily injury and property damage claims migrating from a property, depending upon the site-specific details.”
AMD leaks from mines that are inactive, so federal and state agencies bear the burden of addressing it, said Vetter. “But there are a lot of instances where there are current owners that are highly responsible and involved in trying to address the waste drainage.
“In those cases, those operators are incurring significant costs around water treatment. They may be operating wastewater treatment systems. They may be using more passive systems where they’re putting in limestone aggregate to increase the pH of the water,” he said.
Taking the Financial Risk
Also, there are specific companies called environmental buy-out firms that actually have appetite to assume the cleanup risk and water treatment obligation from a company.
“So suddenly you have somebody who is operating a water treatment system that is either installed or has to be constructed,” said Vetter.
“These companies come in and say, ‘We’ll put a value on what it will cost to do the cleanup or operate the water treatment and then we will take that liability from you in cash.’”
“So if you don’t have an owner and there’s no current insured on whom to make a claim, sometimes you can reach back and make a claim on prior insureds under long-past insurance policies if they are still available.” — David Rieser, an attorney with K&L Gates in Chicago.
“These buy-out firms are taking on the risk around financial performance,” Vetter said.
From a risk management perspective, the issue surrounding AMDs in the U.S. is more about who is legally responsible, said Vetter. “You’ve got what is called joint and several liability. Joint and several liability essentially means that once you are in the chain of liability, you can be brought back into the risk again in whole or in part.”
David L. Rieser, of counsel at K&L Gates LLP in Chicago who covers environmental law, said he doubted that commercial general liability policies “would cover releases from mines because of the absolute pollution exclusion. This excludes coverage for claims resulting from releases of contaminants or pollutants.”
There may be coverage under pre-1980s policies that did not have these exclusions, Rieser added.
“There may also be coverage under specialized pollution liability policies which are now available.
“And a lot of these occurred from mines that have long been abandoned,” Rieser said.
“So if you don’t have an owner and there’s no current insured on whom to make a claim, sometimes you can reach back and make a claim on prior insureds under long-past insurance policies if they are still available.”
When it comes to risk management and AMD, “you’re talking about the physical reality of controlling these releases from uncertain or unknown conditions,” Rieser said.
“Sometimes releases occur as a result of geological events where an older mine will suddenly be releasing drainage into a nearby waterway as a result of an earthquake or minor kind of tremor, depending on the geology in the area.
“Under current mining regulations there are any number of different ways people can manage the programs that watch for potential releases and make sure the waste materials stay in the right place,” Rieser said. &
Water Crisis Damages Flint Businesses
Early this year, President Obama declared a state of emergency due to the water crisis in Flint, Mich., making the city and its residents eligible for federal disaster aid.
Officials eventually took action to make Flint’s water supply safer, but businesses still face reputational damage, loss of revenue and for the most part, no insurance coverage due to pollution exclusions.
In April 2014, Flint switched from using Detroit’s water system to draw its own drinking water from the Flint River. Since then, the river’s acidic water corroded lead pipes, leaking lead into the city’s drinking water.
While residents began complaining in 2015 about the odd smell, taste, and discoloration of the water, public officials insisted it was safe to drink. That was until a September 2015 study by the Hurley Medical Center found that the number of children with above-average levels of lead in their blood nearly doubled after the city changed its water source.
Flint officials acknowledged the problem and the city started getting water from Detroit again the following month.
But the damage had already been done, not just to the thousands of residents who were exposed to high levels of lead, but to homes and businesses with lead plumbing that began to corrode from the acidity.
While a safer source of water is now in place, the physical and economic damages could mount for years.
Businesses in the city are “significantly impacted,” said George Wilkinson, group vice president of the Flint and Genese Chamber of Commerce.
The event is not only a public health crisis but an economic crisis that is resulting in a loss of sales and a halting of business operations, he said. It has been especially problematic for restaurants, hotels and those in the hospitality industry.
“They’re seeing a significant decline in [revenue]. There’s also an increase in expenses because they’re buying bottled water and having to install filtration systems,” Wilkinson said.
Flint’s restaurants now regularly test their water and some installed filtration systems that can cost up to $2,000 each.
While business owners can act to ensure their water is lead-free, the real problem is the reputational damage that the city faces, he said.
“They can be cleared by the Health Department but the real problem is the negative perception. The media is portraying Flint as a war zone,” Wilkinson said.
Flint business owners are largely left exposed because business interruption insurance has stringent pollution exclusions, said Micha Knapp, a producer at the Graham Co. in Philadelphia.
Most general liability and property policies preclude any business interruption or property damage arguments a customer could make, he said. In addition, commercial general liability policies do not cover risks associated with polluted water as they often contain an Absolute Pollution Exclusion or a Total Pollution Exclusion specific to lead.
“From a liability and property perspective, there’s often a suite of pollution exclusions that will remove any coverage for a pollutant or containment like lead. It can leave a company susceptible,” Knapp said.
Dave Walker, president of Hartland Insurance Agency in Hartland, Mich., said few businesses in Flint have the specialized insurance necessary to cover businesses losses.
“They would have to have expected this to have that kind of coverage in place. It’s not something most businesses carry,” he said. “Most will have to [cover losses] out of pocket.”
Knapp said it’s important for Flint businesses to continue to effectively test the water for environmental hazards that could impact customers’ health. He recommended they also consider eventually removing and replacing lead pipes on their properties.
Companies can also consider a Pollution Legal Liability insurance policy, which is geared specifically to the restaurant, hospitality and real estate sectors. Such coverage will also protect companies against liability and property damage associated with Legionella.
“Most don’t have it but there are markets out there that will pick up that coverage,” Knapp said.
Flint’s water crisis could be a glimpse into a mounting national problem, according to experts.
Fitch Ratings said in early-March that there are more than 6 million lead water service lines in existence around the country, most of which are located in the Northeast and Midwest.
Dr. Jeffrey Griffiths, a professor of public health at Tufts University and a former chairman of an advisory board for the U.S. Environmental Protection Agency’s Drinking Water Committee, said in an article for the Detroit Free Press that many of the nation’s pipes can not be located or tested.
Commercial Auto Warning: Emerging Frequency and Severity Trends Threaten Policyholders
The slow but steady climb out of the Great Recession means businesses can finally transition out of survival mode and set their sights on growth and expansion.
The construction, retail and energy sectors in particular are enjoying an influx of business — but getting back on their feet doesn’t come free of challenges.
Increasingly, expensive commercial auto losses hamper the upward trend. From 2012 to 2015, auto loss costs increased a cumulative 20 percent, according to the Insurance Services Office.
“Since the recession ended, commercial auto losses have challenged businesses trying to grow,” said David Blessing, SVP and Chief Underwriting Officer for National Insurance Casualty at Liberty Mutual Insurance. “As the economy improves and businesses expand, it means there are more vehicles on the road covering more miles. That is pushing up the frequency of auto accidents.”
For companies with transportation exposure, costly auto losses can hinder continued growth. Buyers who partner closely with their insurance brokers and carriers to understand these risks – and the consultative support and tools available to manage them – are better positioned to protect their employees, fleets, and businesses.
Liberty Mutual’s David Blessing discusses key challenges in the commercial auto market.
“Since the recession ended, commercial auto losses have challenged businesses trying to grow. As the economy improves and businesses expand, it means there are more vehicles on the road covering more miles. That is pushing up the frequency of auto accidents.”
–David Blessing, SVP and Chief Underwriting Officer for National Insurance Casualty, Liberty Mutual Insurance
More Accidents, More Dollars
Rising claims costs typically stem from either increased frequency or severity — but in the case of commercial auto, it’s both. This presents risk managers with the unique challenge of blunting a double-edged sword.
Cumulative miles driven in February, 2016, were up 5.6 percent compared to February, 2015, Blessing said. Unfortunately, inexperienced drivers are at the helm for a good portion of those miles.
A severe shortage of experienced commercial drivers — nearing 50,000 by the end of 2015, according to the American Trucking Association — means a limited pool to choose from. Drivers completing unfamiliar routes or lacking practice behind the wheel translate into more accidents, but companies facing intense competition for experienced drivers with good driving records may be tempted to let risk management best practices slip, like proper driver screening and training.
Distracted driving, whether it’s as a result of using a phone, eating, or reading directions, is another factor contributing to the number of accidents on the road. Recent findings from the National Safety Council indicate that as much as 27% of crashes involved drivers talking or texting on cell phones.
The factors driving increased frequency in the commercial auto market.
In addition to increased frequency, a variety of other factors are driving up claim severity, resulting in higher payments for both bodily injury and property damage.
Treating those injured in a commercial auto accident is more expensive than ever as medical costs rise at a faster rate than the overall Consumer Price Index.
“Medical inflation continues to go up by about three percent, whereas the core CPI is closer to two percent,” Blessing said.
Changing physical medicine fee schedules in some states also drive up commercial auto claim costs. California, for example, increased the cost of physical medicine by 38 percent over the past two years and will increase it by a total of 64 percent by the end of 2017.
And then there is the cost of repairing and replacing damaged vehicles.
“There are a lot of new vehicles on the road, and those cost more to repair and replace,” Blessing said. “In the last few years, heavy truck sales have increased at double digit rates — 15 percent in 2014, followed by an additional 11 percent in 2015.”
The impact is seen in the industry-wide combined ratio for commercial auto coverage, which per Conning, increased from 103 in 2014 to 105 for 2015, and is forecast to grow to nearly 110 by 2018.
None of these trends show signs of slowing or reversing, especially as the advent of driverless technology introduces its own risks and makes new vehicles all the more valuable. Now is the time to reign in auto exposure, before the cost of claims balloons even further.
The factors driving up commercial auto claims severity.
Data Opens Window to Driver Behavior
To better manage the total cost of commercial auto insurance, Blessing believes risk management should focus on the driver, not just the vehicle. In this journey, fleet telematics data plays a key role, unlocking insight on the driver behavior that contributes to accidents.
“Roughly half of large fleets have telematics built into their trucks,” Blessing said. “Traditionally, they are used to improve business performance by managing maintenance and routing to better control fuel costs. But we see opportunity there to improve driver performance, and so do risk managers.”
Liberty Mutual’s Managing Vital Driver Performance tool helps clients parse through data provided by telematics vendors and apply it toward cultivating safer driving habits.
“Risk managers can get overwhelmed with all of the data coming out of telematics. They may not know how to set the right parameters, or they get too many alerts from the provider,” Blessing said.
“We can help take that data and turn it into a concrete plan of action the customer can use to build a better risk management program by monitoring driver behavior, identifying the root causes of poor driving performance and developing training and other approaches to improve performance.”
Actions risk managers can take to better manage commercial auto frequency and severity trends.
Rather than focusing on the vehicle, the Managing Vital Driver Performance tool focuses on the driver, looking for indicators of aggressive driving that may lead to accidents, such as speeding, sharp turns and hard or sudden braking.
The tool helps a risk manager see if drivers consistently exhibit any of these behaviors, and take actions to improve driving performance before an accident happens. Liberty’s risk control consultants can also interview drivers to drill deeper into the data and find out what causes those behaviors in the first place.
Sometimes patterns of unsafe driving reveal issues at the management level.
“Our behavior-based program is also for supervisors and managers, not just drivers,” Blessing said. “This is where we help them set the tone and expectations with their drivers.”
For example, if data analysis and interviews reveal that fatigue factors into poor driving performance, management can identify ways to address that fatigue, including changing assigned work levels and requirements. Are drivers expected to make too many deliveries in a single shift, or are they required to interact with dispatch while driving?
“Management support of safety is so important, and work levels and expectations should be realistic,” Blessing said.
A Consultative Approach
In addition to its Managing Vital Driver Performance tool, Liberty’s team of risk control consultants helps commercial auto policyholders establish screening criteria for new drivers, creating a “driver scorecard” to reflect a potential new hire’s driving record, any Motor Vehicle Reports, years of experience, and familiarity with the type of vehicle that a company uses.
“Our whole approach is consultative,” Blessing said. “We probe and listen and try to understand a client’s strengths and challenges, and then make recommendations to help them establish the best practices they need.”
“With our approach and tools, we do something no one else in the industry does, which is perform the root cause analysis to help prevent accidents, better protecting a commercial auto policyholder’s employees and bottom line.”
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Liberty Mutual Insurance. The editorial staff of Risk & Insurance had no role in its preparation.