Can environmental liability’s insurance be made mandatory?

Ahead of the Manders Report’s adoption on
environmental liability by the EP Legal Affairs committee,
European insurers question the workability of the current
proposal.

Insurance is a key issue of the Commission’s draft
directive on environmental liability. The current
Commission’s proposal indicates that Member States should
encourage the development of appropriate insurance or other
financial security instruments and markets by the
appropriate economic and financial operators, including the
financial services industry.

In its 21st amendment to the Commission’s proposal, the
Parliament’s rapporteur Toine Manders turns insurance into
a compulsory requirement by adding that “As soon as
possible, but at least within a period of 5 years after the
entry into force of this Directive, insurance or other
means of financial security should be mandatory on the
basis of a sliding scale, provided that financial security
instruments are developed and available at reasonable,
market prices”.

European insurers deny the workability of this proposal
and consider that setting up schemes to cover environmental
damage within the limits of insurability depends on
fulfilment of certain basic conditions:

  • a precise definition of the term biodiversity in the
    draft Directive. Insurers can only insure something
    measurable and with an economically quantifiable risk,
    essential for calculating premiums.
  • The principle of compulsory insurance is only
    possible on a mature market, when risks are clearly
    identifiable. Given the impossibility at this stage of
    offering cover for biodiversity risks, the principle of
    compulsory insurance is not conceivable for environmental
    liability, where risks differ substantially from one
    operator or sector to the next.
  • Companies that do not act negligently and operate in
    accordance with administrative authorisation must not be
    held liable for environmental damage: the state of the
    art and compliance with permit principles remain crucial
    basic conditions for insurability.

 

<strong>Toine Manders

(NL-ELDR), Parliaments' rapporteur said "Insurance should
only be made mandatory when the market will be mature after
a certain period of time (5 years or more if needed). Our
strategy is to request the Commission after five years to
come up with a revised directive, based on art. 95 (maximal
harmonisation) providing for compulsory insurance. In the
beginning we want to contain the directive's requirements
to make it workable. After having gained experience, its
scope and obligations will be extended."

The Greek Presidency

, hopes that the limitations of the obligations for an
initial period will allow the insurance industry to react
more favourably in respect of the insurability of the
proposal.

For the Comité européen des assurances
(European insurances federation), Mr Marsaud

, said "European insurers are keen to participate in a
scheme which renders environmental risks insurable step by
step. The development of insurance products to cover such
risks should be encouraged progressively, starting from a
given area of environmental risks and hazardous activities
like the new approach adopted by the Greek Presidency.

Eurochambres

, the Association of European Chambers of Commerce and
Industry, says that "the environmental liability directive
goes too far and will create major legal and economic
uncertainty for European companies if adopted according to
the current European Commission proposal".

Environmental NGOs

, believe that "if t he Directive is to achieve its aims of
preventing and restoring environmental damage, then it is
absolutely crucial that some form of compulsory financial
security be imposed. If this does not happen, there will be
a perverse incentive on the operator to pollute. In
addition, if different insurance schemes develop across the
EU, this will almost inevitably lead to a distortion of
competition, as different standards will apply in different
countries, making the liability rules in some countries
much stricter than in others".

 

In January 2002, the Commission issued a proposal for a
directive on environmental liability. The proposal aims to
ensure that future environmental damage is paid by the
polluter, and preferably prevented. The proposed directive
covers three types of environmental damage: biodiversity,
water and damage which causes serious potential or actual
harm to public health via soil or sub-soil contamination.

 

  • 21 March 2003: Adoption of the Industry Committee's
    opinion
  • 24 March 2003: Vote on report in Legal Affairs
    Committee if the Committee's working group has managed
    to find broad support in the Committee on the
    controversial issues (definition of biodiversity,
    defences, insurance)
  • April 2003: Vote in Parliament Plenary
  • March 2003: the Environment Council is expected to
    discuss a progress report
  • June 2003: Environmental Liability is a high
    priority issue for the Greek Presidency and so the
    Presidency will try, the European Parliament timetable
    permitting, to reach a political agreement on this
    proposal at the Council meeting on 13 June 2003.

 

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