Environmental insurance has been mandatory since 2018

by | Oct 10, 2018 | Publications

The requirement to provide a financial environmental liability guarantee took effect on 30th October for a select few economic activities, and will become mandatory from 2019 for a broader range of priority 2 activities, with a date for priority 3 activities yet to be determined.

Several important questions remain unanswered, including the timescale for environmental administrations to mandate existing authorised operators to set up this guarantee, and specifics regarding operating regulations and contributions to the Environmental Damage Compensation Fund, which the Directorate-General for Insurance will soon regulate..

However, our current focus is on the undue emphasis placed on the financial guarantee obligation, the most debated aspect since the environmental liability act was introduced in Spain eleven years ago (it should be noted that insurance is only one of the three options available for operators to comply with this obligation, yet it is by far the most appealing from a financial and risk management perspective).

For this reflection, we will use three instances of environmental damage from recent years as indicators of potential future incidents:

  • A contractor is awarded a tender to clean up a forest area following a fire. After completing the work, he/she receives a formal complaint for inadvertently destroying a significant number of protected flowers.
  • A service station in a built-up area is liable for contaminating the subsoil and groundwater due to a leak in one of its pipes, with the cost of the decontamination work escalating throughout its execution due to added difficulties, some of them unforeseen, that come with working in a built-up area.

  • Fire in a small agrochemical warehouse, causing contamination in a nearby river.

These three cases, none of which are uncommon, have two common features:

  1. None of the three operators will be subject to the financial guarantee obligation in the foreseeable future.
  2. All three will have to face costs and management difficulties they are not ready to assume.

Advisers guiding their clients on insurance programmes may find it useful to bear this in mind.



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