From the September 2010 issue of Treasury & Risk magazine

Pollution Coverage Alert


When Hurricanes Katrina and Rita battered the U.S. Gulf Coast in 2005, many companies that were devastated by the resulting flooding and dislocation of whole populations learned a lesson: You need to insure not just against storm damage, but to cover income lost because of a storm. With the northern rim of the Gulf of Mexico hosting some 26,000 active oil rigs, you might think that companies, particularly those that depend upon the Gulf's rich waters or beaches for their business, would have protected themselves against a pollution disaster. After all, California had its big Santa Barbara oil rig blowout in 1969 and Alaska suffered the Exxon Valdez spill in 1989. So it doesn't take much imagination to contemplate a big spill in the Gulf.

Astonishingly though, companies have largely passed on buying environmental pollution coverage, not just along the Gulf Coast, but across the United States. Ironically such insurance may never have been so cheap. According to industry sources, policies that just a decade or so ago would have cost a company $100,000, today can be had for as little as $2,500--chump change for even smaller companies. The cost reflects the lack of demand, as well as the overall softness in insurance prices.

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