Staking out new territory in a challenging market

By Elisabeth Boone, CPCU


Ready to offer agents a fresh approach to marketing, underwriting, and managing environmental exposures are (from left) Paul M. Murdoch, ARM, executive vice president and chief underwriting officer of Kemper Environmental; John Reynolds, president and CEO; and Susan M. Doering, director of field services.

09p94b.jpg ot so long ago, the market for environmental insurance was driven primarily by government regulation, with new rules and standards mandating the creation of coverages to protect insureds against legal liability in a host of situations. Regulation is still a strong force in the market, but it's no longer the dominant element in the insurance equation. Other factors are emerging that call for a fresh approach to marketing, underwriting, and managing environmental exposures.

In this article we'll talk with top executives of Kemper Environmental, which was created in 1997 to serve as the environmental insurance arm of the Kemper Insurance Companies. We'll learn why the insurer formed this new unit, how it's delivering on its commitment to the marketplace, and where it's headed as we move toward the new millennium. Providing input for the article are John W. Reynolds, president and chief executive officer of Kemper Environmental, responsible for the development, startup, commercialization, and management of the specialty business unit; Paul M. Murdoch, ARM, executive vice president and chief underwriting officer; and Susan M. Doering, director of field services. All of these executives have a strong background in environmental insurance and risk management, having served in management capacities with insurers, reinsurers, and major brokerage houses.

Why did Kemper Insurance, one of the country's leading standard carriers, decide to enter the complex and challenging market for environmental insurance? "This decision was part of a broader strategy to introduce high margin specialty insurance capabilities," Reynolds explains. "Senior management recognized that Kemper needed to offer a wider array of products and services in order to enhance competitiveness." Kemper's investment in the environmental business supports our belief that there is significant growth potential in this sector." Adds Murdoch: "The macro-environmental market will continue to expand dramatically over the next five years, and we view that as a tremendous opportunity."

A view of the market

What does today's market for environmental insurance look like? "It's less driven by regulation and more driven by financial considerations," Murdoch responds. "In mergers, acquisition and divestiture transactions, where there's a transfer of liability from one party to another, environmental insurance is increasingly being viewed as the right tool to get the job done." In such property transfers, Reynolds observes, "both the buyer and the seller are aware of the liabilities involved, and this knowledge provides the outline for an insurance program." Adds Doering: "In these transactions, there's a need for a broad array of coverages to address the various exposures. We've constructed business units that can address these coverage needs." At Kemper Environmental, Reynolds notes, "our organizational structure is such that we focus expertise in selected markets so we can translate a client's exposure and risk into a balanced set of coverages. We believe the gateway to success in this market is highly skilled professionals who can deliver the products and services clients require."

Today's environmental insurance market is hungry for capacity, Murdoch comments. "We led the charge last year with limits of $100 million per loss/$200 million aggregate, and other insurers are starting to follow," he says. "The market continues to push for capacity. Clients are demanding much higher limits."

Kemper.2 "We're driven by an entrepreneurial spirit that spurs us to seek solutions for complex risks."

--John Reynolds

Kemper Environmental's major competitors are ECS (recently acquired by XL Capital, Ltd.), AIG Environmental, and Zurich American Specialty. "Other competitors are niche players in one or two markets," Reynolds adds, noting that more traditional insurers are starting to staff up for an entry into the environmental market. "In the near future, we anticipate one more major competitor," he says.

As to pricing, Murdoch says, "From the client's standpoint, coverage is viewed as affordable with respect to the cost-benefit ratio, and is seen to be in balance with the terms and conditions of coverage. This wasn't the case five or ten years ago, but now we're seeing a healthy balance on the pricing side."

Entrepreneurial and experienced

How does Kemper Environmental seek to distinguish itself in its chosen markets? First, "We selectively focus on particular market segments," Reynolds says. "This allows us to offer truly customized environmental insurance as well as meeting our clients' needs for standard property and casualty coverages." Second, he notes, "Our significant investment in skilled, experienced professionals sets us apart from the marketplace. We continue to grow organically and through the hiring of new personnel. We're also driven by an entrepreneurial spirit that spurs us to seek solutions for complex risks."

Many people think of environmental risks as affecting only huge corporations with multiple locations and billions of dollars at risk. Kemper Environmental can meet the needs of these giants, but it's also well equipped to deal with exposures of much lesser magnitude. "Historically, the market has been dominated by larger corporations--chemical and petrochemical firms, for example--that tend to be the targets of regulatory and legal scrutiny," Murdoch explains. "Now we're seeing 'main street' clients returning to the market." As examples, he cites commercial real estate operations; agricultural entities; municipalities that operate public landfills and maintenance garages; and hospitals and colleges and universities with significant real estate holdings and on-site laboratories. "We're encountering a broad spectrum of clients of all types and sizes, and for each client we're able to customize both the application and delivery of services," Murdoch says.

Focused business units

Powering Kemper Environmental's presence in the marketplace are five focused environmental underwriting units, which are integrated with a full-service commercial lines operation and staffed with experts in their respective fields. The units are:

Construction and Consulting: Provides pollution, professional, and casualty coverages for environmental-related design, construction, and consulting operations.

Industrial Facilities and Risk Management: Underwrites and develops environmental insurance programs for facilities such as light and heavy manufacturing, bulk storage and service, materials processing, and environmental/waste management; also designs environmental risk management programs that may include high deductible, policy fronting, finite risk, captive insurance, manuscripted policy programs, and unbundled risk management services.

Commercial and Real Estate Markets: Provides environmental insurance for property transfers; offers agents and brokers tailored coverage for portfolios of properties ranging from golf courses to property managers; and underwrites environmental coverage for nontransactional business, particularly in the health care, education, real estate, and general commercial markets.

Special Programs: Establishes and manages industry-specific programs of environmental insurance for associations, affinity groups, franchises, cooperatives, and their sponsoring organizations. Programs can include special industry/group targeted coverages, loss control and claim services, and special marketing efforts, as well as the use of captives, risk retention, and other insurance purchasing groups.

Environmental Surety: Provides bid, performance, payment and various contract bonds for environmental projects and contractors.

As was mentioned earlier, Kemper Environmental also operates a full-service commercial lines unit. Through this facility, clients have access to workers compensation coverages that are backed by a claims management program; a policy that provides funds to locate, recruit, and compensate a temporary top executive if the insured's CEO becomes disabled; and enhanced property insurance that includes boiler and machinery coverage. Also available through this unit are inland marine and crime insurance.

Kemper.4 Susan Doering notes that Kemper Environmental plans on adding staff to its regional offices in order to be closer to local retail agents.

Menu of services

So far as environmental risks are concerned, coverages are only part of the equation at Kemper Environmental. Each of its five business units also offers clients a wide range of services to complement their insurance protection.

Risk Management: For regulated environmental facilities such as landfills and hazardous waste treatment operations, which by statute must demonstrate the ability to pay third-party liability claims, risk management may be an appropriate alternative to traditional insurance. For these clients, Kemper Environmental offers a range of options: finite risk programs, risk funding programs, policy fronting and matching deductible programs, high deductible/SIR programs, captive reinsurance programs, and customized risk transfer programs for large or multi-site accounts.

Engineering and Loss Control: Kemper Environmental's loss control programs, tailored to the client's individual needs, are the basis for a partnership between insurer and insured that helps prevent or minimize claims and claims costs. In-house experts provide such services as environmental engineering, workplace and process safety, industrial hygiene, risk management consulting, pre-claim and contract review, occupational health, laboratory services, ergonomics, behavioral management, and training. A network of outside service providers offers clients access to full-service engineering and environmental consulting, legal counsel, management consulting, and specialty consulting partners.

Claims: The claims division, staffed with experienced attorneys and environmental consultants, provides its services at no additional cost to insureds for covered claims. Environmental claims attorneys coordinate claims with the insured and the agent or broker; analyze the insured's potential liabilities and recommend damage mitigation options; negotiate and coordinate with environmental agencies; monitor litigation and participate in settlement negotiations, mediation, alternative dispute resolution, and trial; provide referrals to defense counsel, expert witnesses, consultants, and contractors; and review invoices to reduce litigation costs.

An open door for agents

Kemper.3 Paul Murdoch says when there's a merger, acquisition or divestiture transaction resulting in a transfer of liability from one party to another, environmental insurance is an important tool.

Understandably, the biggest risks tend to come from the major brokers--but Kemper Environmental deals with the independent agents who bring in many kinds of diversified clients like those mentioned earlier. Interestingly, "Independent agents frequently have more complex risks than you'd expect," says Susan Doering, director of field services. "We enjoy working with independent agents, and we get a lot of good business from them. We interact closely with independent producers and their clients. They tend to know their clients well, and that helps us be more responsive in designing coverages and services."

What qualities does Kemper Environmental seek in an independent agent with whom it does business? "First, we look for eagerness to be involved in writing environmental business," Doering responds. "Many retail agents lack specific environmental expertise, but if they have the interest, we can provide the knowledge base and facilitate training. Lack of knowledge is not a problem." Murdoch concurs. "Often a local or regional producer has not been involved in the environmental market, but once we've begun the process, they quickly become enthusiastic." Adds Reynolds: "We want to establish a long-term relationship with each producer. We don't want just one isolated piece of business; we want repeat business."

Kemper Environmental plans to move even closer to retail producers, Doering explains. "We'll be staffing our regional offices with underwriters to better address the needs of local retail agents," she notes.

Another way the insurer seeks to reach out to independent producers is through its Web site ( "Agents can visit us online and get an introduction to Kemper Environmental, find out who's who and who handles what, and then give us a call," Doering says.

What's ahead?

Looking to the future, Kemper Environmental anticipates continued growth in the market for environmental insurance--and ongoing expansion of the products and services it offers to this market. "We expect significant growth in all our divisions," Murdoch says, "and we believe we'll see our greatest growth in the industrial facilities and risk management unit. This is very much an evolving marketplace, with many manufacturing clients returning to the market. We see tremendous potential in the area of mergers, acquisitions and divestitures." Among the key emerging markets, Murdoch says, are utilities, agricultural operations, and municipalities.

"We foresee dramatic growth in the environmental market," Reynolds asserts, "and we'll continue to focus on specific market segments and to invest in the professional expertise that will enable us to meet the needs of those markets."

By any measure, environmental insurance is a risky business--and for Kemper Environmental, it's clearly a market that merits the highest possible levels of skill, focus, and commitment. *

©COPYRIGHT: The Rough Notes Magazine, 1999