Seventh wonder: Mosaic adds environment to its specialty lines

Mosaic Insurance has added to its range of complex specialty lines, with the launch of a global Environmental Liability division to be led by 30-year executive Jim Finnamore. He joins Mosaic with a wealth of environmental experience, having worked in that discipline as an underwriter, broker, adviser and engineer.

The division is the company’s seventh underwriting unit, alongside cyber, financial lines, political risk, political violence, professional lines and transactional liability.

Each of its units leverages a consortium structure, whereby Mosaic works with insurance partners, with the greater share of its policies written by its own Lloyd’s syndicate, 1609.

Finnamore says the new division will initially focus on the ‘E’ in environmental, social and corporate governance (ESG) factors, with the future goal to address the ‘S.’

Finnamore graduated with a microbiology degree and an MSc in environmental technology, specialising in radioactivity and the disposal of radioactive material at the legacy nuclear site at Sellafield, in north-west England. He moved into environmental consulting, doing soil and groundwater investigations for the clean-up of contaminated brownfield land, and environmental auditing of manufacturing in industrial facilities.

He wrote technical guidance for the UK regulator, the Environment Agency, and is a co-author of technical guidance, still in use, for monitoring the natural degradation of pollutants in groundwater. He also wrote technical guidance for the Construction Industry Research & Information Association on the use of environmental insurance for contractors and clients.

“That got me a reputation within the environmental insurance market which, back in those days, 25 years ago, was in its infancy, particularly outside of the US,” he said.

He joined Chubb and has worked in environmental insurance ever since. With a number of companies, he has worked in Bermuda, Singapore and Australia, broking environmental risks, placing environmental risks, and underwriting them.

When he was Europe and Asia-Pacific manager for Quanta Reinsurance, Finnamore’s path crossed in 2004 with that of Mosaic’s chief underwriting officer, Tim Glover, who at that time was deputy active underwriter of the Quanta-backed syndicate 4000.

“I admired Jim’s underwriting of environmental business, so we’re delighted now to welcome him on board Mosaic,” Glover said. “This is a highly specialist, technical class of business and Jim is a leader in that class.”

He continued: “We bring a subscription market through our capital partners, and they back us because we have the expertise. We write the wordings, we handle the claims and we are that primary market. The construction boom has created a growing class of business we’re ready for.

“Jim will run global operations for the environmental division at Mosaic, making use of our network of offices in the US, Bermuda, and Toronto, with more regional hubs to open before the end of the year. It’s one of the seven classes of business that we foresee writing, and they all fit our criteria of being very highly specialist and technical.”

A suite of policies

Mosaic offers a suite of proprietary environmental policies to protect companies in a wide range of industry sectors against the risk their activities damage the environment, incurring costs and liabilities. In-scope sectors include oil and gas, metal mining, power generation, electricity transmission and distribution, manufacturing, waste management, real estate, construction and infrastructure.

Finnamore explained: “All these industries are exposed to pollution liabilities, be those direct or indirect. On the direct side, metal mining, for example, generates tailings, or waste residue. Mining companies build dams to hold back the volume of tailings they produce. If a dam collapses, as we’ve seen happen in a couple of high-profile incidents in South America in recent years, the cost of clean-up and damage to the environment can be enormous, driving demand and need for coverage.”

Another example of a potential exposure could be loss of containment in a crude oil pipeline. In such cases, third parties can be impacted, via property damage, or harm caused by exposure to hazardous chemicals, making compensation payable.

“That’s essentially the sort of concept by which our product suite is playing out, but products will also be customised to different types of companies. Heavy industry, mining, oil and gas, petrochemicals manufacturing, and waste management would tend to buy a programme to insure the risk of liabilities materialising as a result of pollution at sites they own and operate—known as a Site Pollution Liability policy.

“Additionally, you’ve got contractors whose liabilities materialise as a result of the work they’re doing on customers’ sites. Pollution at those sites could result in liabilities, so we have a product that responds to such a scenario.”

On the indirect side, Mosaic has policies covering the financial sector—banks and project financiers—whose exposures could stem from pollution caused by borrowers.

All Mosaic’s insurance policies will have an aggregate limit.

“It’s a science, or perhaps an art, to try to predict what the maximum probable environmental loss would be in any given situation,” said Finnamore. “Certain industry types have more severe exposures than others: mining, oil and gas tend to be higher severity, whereas residential, light manufacturing and logistics tend to be lower severity. But once in a while, a seemingly innocuous business suddenly produces a very extreme liability. That’s where there’s potential for underinsurance.”

Three applications

Mosaic’s environmental liability policies will have three types of applications.

The first is short-term, annually renewable business, where there is risk of ongoing pollution and environmental damage.

The second type is multi-year coverage for an energy-transition project. Mosaic sees opportunity in the conversion of so-called “challenging” land—once used for high carbon-generating industry—to that which can support renewable energies, like solar parks or farms for wind turbines.

“As part of the decommissioning process, these vast areas of land could be valuable as they can be built upon, but developers are often naturally concerned about the residual environmental liabilities,” noted Finnamore. “They could be great places to situate solar farms, so, to encourage investment and break down the perception of leftover liability, we may provide a long-term policy for construction, development, and subsequent operation of renewable energies on that land.”

The third application is the use of environmental insurance on mergers and acquisitions. In these cases, Mosaic offers multi-year coverage to buyers who may be concerned about incurring legacy pollution liabilities, such as asbestos or contaminated land, or to sellers who seek a clean exit from any residual environmental risk.

Perfect fit

Glover said the environmental division “fits perfectly” within Mosaic’s consortium structure in the same way as its other divisions operate.

Mosaic expects to secure partner capital from three or four other insurers to underwrite global risks through the new division, with effect from January 1.

Finnamore said progression of Mosaic’s product suite will follow.

“At the moment, the environmental insurance market has been focused on a subset of the ‘E’ in ESG, where that means pollution of the environment and environmental damage. There’s also a much wider range of environmental risks we should be insuring, moving into the ‘S’ in ESG by looking at some of the social risks.

“In due course, we’re planning to offer coverage extensions to move into those new spaces, including supply-chain risks for manufacturers, who may well be facing a contingent-side liability as a result of environmental damage and pollution caused by outsourced partners in other areas of the world. Eventually, we’ll be looking at some of the social issues for supply chains, too.”

Is there room in Mosaic’s toolbox for yet another specialty line?

Glover said: “We’re going to consolidate what we have for now. We have very strict criteria on the types of business we want to underwrite. There’s never a ‘no’ to a new one, but it’s got to meet those criteria of being a cross cycle, profitable opportunity that is highly technical and where we have the underwriting resource to be a leader in that market. We’re not going to add to a line that’s already got an abundance of capacity. Instead, we’re creating those that make a difference.”