Ford, DaimlerChrysler, General Motors and IBM have forced property and casualty insurance agents to proactively address the environmental issues that impact their clients or face E&O suits and/or loosing business. Wait a minute, you say, what is this all about?
To start with, let’s take a look at what Ford, DaimlerChrysler, General Motors and IBM are requiring of their vendors, your commercial Insured’s. All four have publicly announced requirements for their suppliers to become ISO 14000 certified. Specifically, Ford states, they will “require ISO 14001 certification from all of its suppliers with manufacturing facilities.” “This requirement reinforces Ford’s commitment to the environment.” Ford will require suppliers to certify at least one manufacturing site to ISO 14001 by the end of 2001 and all manufacturing sites shipping products to Ford by July 1, 2003.
For General Motors, by the end of 2002 they will require their suppliers to certify the implementation of environmental management systems (EMS) in their operations, in conformance with ISO 14001. “GM believes that implementing an effective environmental management system will enhance any company’s ability to accomplish long term business objectives.”
DaimlerChrysler states “Effective January 1, 2003 DaimlerChrysler will require its suppliers to be third party registered to an environmental management system based on ISO 14001.”
This announcement is going to do for environmental insurance what Clarence Thomas did for employment practices liability insurance. Word on the street is that within the next 12 to 24 months nearly half of the Fortune 500 companies will place the same requirements on their vendors. Also, it is estimated, that ISO registration will take an average of twelve months to complete.
WHAT IS ISO 14000?
On Sept. 1st, 1996 the International Organization for Standardization (ISO) formalized the ISO 14000 series of environmental system standards, sometimes referred to as the green standards. ISO 14000 was developed as a follow up to ISO 9000 to give business (any entity that sells a product service or idea), a structured framework with which to formulate comprehensive policies and objectives for Environmental Management Systems (EMS)
An EMS is defined as a systematic approach for controlling the environmental impacts of a business’s activities and processes, while simultaneously considering legislative requirements, relevant public issues, and plant-specific environmental concerns. Bottom line, become proactive versus reactive with the environmental issues that impact you.
Registration with ISO increases the visibility and credibility of a businesses environmental management processes, especially in the eyes of environmental regulators. Registration will also enhance marketing and public relations efforts and improve relationships with non-government organizations and customers.
Once a business has decided on a strategy, it should establish an environmental baseline and develop a plan for building and implementing an EMS. ISO specifies the following necessary components of an EMS;
- Defining an environmental policy.
- Identify legal obligations and environmental aspects.
- Creating environmental planning objectives.
- Establishing an environmental management program.
- Specifying how to achieve objectives.
- Implementing the EMS and operational controls.
- Assessing conformity with the requirements of the standard and taking corrective actions in cases of nonconformity.
- Conducting internal EMS audits.
- Conducting a management review of the EMS.
Many businesses already have useful resources to draw from. Existing resources that companies often overlook when developing an EMS include OSHA lists of chemicals used in their facility, hazardous operations reports, chemical substances inventories, Form R, Tier 1 and Tier 2 reports submitted under the Emergency Planning and Community Right-to-know Act, contingency or vulnerability studies about critical systems or equipment, risk management studies, corrective action reports, maintenance reports and more.
The business should also examine the facilities surroundings and ask such obvious questions as: where is the plant located? Is it near a river, or wildlife sanctuary? Is it within a non-attainment area for some pollutant? Is it next to a school, in a minority neighborhood or in a major city? Environmental aspects identified during brainstorming sessions should also be addressed.
The ISO program must be documented, implemented, maintained, communicated to all employees and made available to the public. In the end, businesses must remember to be practical, keep procedures simple, and not waste time addressing issues over which the organization has no control.
WHY THESE FOUR COMPANIES ARE AT THE TIP OF THE ICEBERG
It is important to understand why these companies are making the ISO 14000 requirement of their vendors and why this will become a standard in doing business not only in the United States, but around the world. These four companies along with thousands of other companies have sustained financial loss due to their vendor’s environmental liabilities. In one case, General Mills hired a vendor to apply pesticides on raw oats. The vendor purchased and applied a non-approved pesticide. Testing revealed the use of the improper pesticide and General Mills sustained a loss of $146.9 million.
Who are you doing business with, from an environmental perspective, this has become a critical question for business. These four companies feel by dealing with ISO 14000 registered vendors they better position themselves to avoid negative environmental liabilities. Today, successful businesses realize that proactive environmental management gives them a competitive edge. A proactive company not only produces a better product but they increase their profits, and in a global economy, this is crucial to success.
Add to this the fact that the Department of Justice has a 98% conviction rate for companies facing environmental fines and penalties. Also, studies have revealed that if a company waits until a governmental agency gets involved to deal with an environmental liability, the cost to remedy the problem can go up between 35% to 50%. Either one of these scenarios can cause an interruption in a vendors ability to deliver their product to Ford. DaimlerChrysler, GM or IBM.
HOW ISO 14000 IMPACTS P&C AGENTS
Now that we all understand what ISO 14000 is. Why these four companies are requiring their vendors to register, and, this is only the beginning of a major change in business strategies, how does all of this impact a commercial P&C agent?
While ISO 14000 does not have any requirements for business to buy environmental insurance our research shows the main reason most businesses have not been buying environmental insurance is due to their lack of education about the environmental issues impacting them. Once a business goes through the ISO process they will gain a tremendous education. They will also realize they have unknowingly self-insured a huge exposure that if not properly addressed could financially devastate them.
Our research also shows most insurance agents are not discussing environmental insurance with their clients due to their lack of understanding the issues, products and solutions available. Ford, DaimlerChrysler, GM and IBM have created a great opportunity for you to separate yourself away from the commodity-based agents who sell on little more than price. By assisting your clients to proactively manage the environmental issues impacting them you are bringing more value added service to the table. Standard property and casualty insurance has become just that, standard. There is very little difference between one carriers coverage and another, thus the Insured has little to judge their buying decision on other than price. If someone is just looking for a quote, tell them to open up the yellow pages, they are full of agents who will offer quotes. As a professional agent you need to spend your time writing and servicing business, not quoting.
As an agent you have to understand what financial risk is. The days of dealing with event or hazard risk are gone for good. A professional agent today has to deal with the total risk, risk is risk. Agents have to develop efficient risk transfer structures that don’t require your insured to place their risk in neat, prearranged boxes, i.e. BOP policies. As a P&C agent your knowledge and experience is your value. When you meet your clients actual needs and not their perceived needs you will prosper.
Issues today are becoming to complicated for a single agent to be an expert in all areas. Successful agents realize they have to work as a TEAM (Together Everyone Accomplishes More), and by being proactive they can build their team of experts to better assist their clients. In other words, you leverage each other’s strengths for the good of the whole. At Environmental Strategist, Inc. we can assist you in meeting your Insured’s environmental needs. We are your one stop environmental shop. Agents who work with ESI learn how to produce a better product while increasing their sales, with less effort.
Ford, DaimlerChrysler, GM and IBM’s announcement offers you the opportunity to build on your level of expertise. An opportunity to keep pace with the changing P&C market. Since the environmental trend is growing, and makes good business sense, you can assume that more and more of your Insured’s will be expected to meet the same requirements that these four companies have established for their vendors.
Some of the environmental insurance coverage’s appropriate for your Insured’s
are environmental impairment liability, cost cap coverage, Brownfield redevelopment, products pollution, professional liability, auto pollution liability, contractors pollution liability, underground and aboveground storage tanks, property transfer coverage, and asbestos in place, to name just a few.
Agents that attend one of our Environmental Liability Insurance seminars or become a certified environmental Strategist (eS) will learn some of the benefits to be gained from environmental liability insurance, such as;
- All policies come with defense coverage and anyone in business understands how high legal fees can run. You don’t have to look any further than Superfund to see how critical this issue is. With Superfund, .83 cents of every dollar has gone to legal fees and only .17 cents has gone to actual cleanup. When you realize the average Superfund site cost in excess of $30 million to cleanup, you have to go through a lot of .83 cents to get the job done that protects human health and the environment.
- All policies offer experts to assist in handling claims. When you can have the Federal, State and Local governments along with the press hounding an Insured for answers, this is not a fender bender, you need trained claims professionals to proactively run damage control.
- Most of the time, the cost to clean up an environmental problem is far less than the third party claims that come in, mainly for business interruption coverage. When you hear an insured tell you they can handle a clean up, ask them if they can afford to pay for their neighbors business interruption because they had to shut down their operations due to your Insured’s environmental loss. Who are their neighbors they can impact, is it a Ford or GM plant, a school, a residential community? If you do not ask the right questions you will never get the right answers.
Another simple risk management technique is to look at how your client buys their raw materials. The majority of the times most businesses buy their goods FOB (Freight on Board) point of shipment, why, because it is cheaper. This means if you have a plastics manufacturer and they are having liquid resins delivered to them, FOB point of shipment, and there is an over the road spill on the way to their facility, what is their strategy to deal with the problem. Most of the time this is when you get the deer in the headlight look and the response, “it’s not my problem”. Of course it is, the Insured bought their raw materials FOB point of shipment and once it left the loading dock it became their property.
As an Environmental Strategist (eS) we have four ways to deal with the problem;
- Stop buying your materials FOB point of shipment.
- Working with your legal counsel TEAM member, draw up a contract that transfers that responsibility to the transporter until the raw material is delivered and off loaded at the Insured’s facility.
- Only deal with a transporter that is carrying auto pollution liability insurance. (Note, an MCS-90 endorsement is not pollution coverage)
- You can purchase third party auto pollution liability insurance that covers the Insured while third parties are transporting their goods.
As a professional eS you are giving your Insured options. This allows them to pick the strategy that best compliments their corporate philosophy and you are indispensable in their business operations.
Copyright, Environmental Strategist, Inc., 2000