Avoiding Pollution Penalties: Risk Management is the Key
| Pages | 17-18 |
| Date | 01 May 1991 |
| Published date | 01 May 1991 |
| DOI | https://doi.org/10.1108/02635579110138171 |
| Subject Matter | Economics,Information & knowledge management,Management science & operations |
AVOIDING POLLUTION PENALTIES: RISK MANAGEMENT
IS THE KEY 17
C
ompany directors should anticipate
environmental responsibility, as new
legislation could mean prosecution for
damaging the environment.
Avoiding
Pollution
Penalties:
Risk Management
is
the Key
Industrial Management & Data Systems, Vol. 91 No. 5, 1991, pp. 17-18,
© MCB University Press Limited, 0263-5577
Company directors have been warned of the "double-
barrelled shot-gun" of environmental legislation which will
face them in the near future.
Sir Hugh Rossi, Chairman of the House of Commons
Environment Select Committee, said new British laws
would make it a criminal offence for companies not to
dispose of waste products properly. At the same time new
European legislation would mean that companies which
cause pollution could be sued in the civil courts.
Sir Hugh was addressing the Directors' Environmental
Responsibilities conference in London, organised jointly
by leading insurance brokers Sedgwick James, and the
Institute of Directors (IOD) on 17 July 1990.
He said the new "get tough" measures to combat
pollution could have a beneficial commercial effect through
encouraging companies to audit their waste. In America
this had helped companies save money by prompting them
to develop production methods which not only produced
less waste, which was costly to dispose of, but also were
more cost-effective in themselves than old, outdated
methods.
Although boards of directors will calculate the costs of basic
raw materials down to the last penny, there are very few
who are aware of the costs of disposing of their company's
waste
products.
That
will
all
change when the Environmental
Protection Bill becomes law. Damage to the environment
will be subject to the jurisdiction of the Inspectorate of
Pollution, which will have considerable powers of
prosecution.
But the new laws would absolve companies of
responsibility for waste products, once a licensed disposal
operator had removed them from his site. He wondered
if this was not a "soft option", and whether a "cradle to
grave" policy, such as that employed in America, would
not be more effective.
Insurance would never be anything but a partial answer
to the problem of environmental damage, James Hopper,
Director of Casualty Broking for Sedgwick James, told
the conference. There was too much defensive reaction
from underwriters. Instead it was a risk-management
problem.
"Underwriters have had a horrendous experience in the
USA where colossal sums have been paid out for
environmental damage", he said.
The Alaska oil spill, for example, resulted in a record $400
million settlement.
They are also reluctant to take on long-term risks, which
might
be
subject to
a
claim
in
the year
2000
or
beyond.
They
can't get a fix on what they are insuring.
They will also wonder whether they can ever make money
out of writing this class of insurance. The business of
underwriting pollution and environmental damage has been
extremely unprofitable. And underwriters are in business
to make a profit the same as the rest of us.
He said what companies were likely to be offered was
insurance against pollution, provided it was sudden and
accidental. The difficulty was in defining what was sudden
and what was accidental.
The market had realised that something had to be done
to introduce new environmental damage policies that
included third party exposures. Within a year or so there
might be a policy which did better than the poor quality
of cover existing at the moment.
I think this
will only
come when
an
underwriter
is
convinced
there is very very good risk management. This is where
the emphasis needs to be in the first place. Even so
premiums are not going to be cheap.
Techniques for physical risk management were explained
by Howell Jones, of Sedgwick James, a specialist in the
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