Environmental Impairment Liability Insurance (EIL insurance) is a new insurance product in China. Earlier in the history of the coverage, the insured facing an EIL loss often sought indemnification through their Commercial General Liability (CGL) policy. With the increase in EIL claims, both in frequency and severity, CGL writers, never intending the scope of their coverage to extend to EIL, quickly addressed the coverage question by excluding EIL from their CGL policies.
EIL insurance in China started its journey at the beginning of the 1990s and developed too slowly to meet the need of the Chinese insurance market. Companying with the Chinese economy’s rapid development over the past 30 years, the environment incurred serious destruction. According to the introduction of a Chinese officer from the State Environmental Protection Administration (SEPA), China currently suffers from a high probability of environmental pollution accidents. Approximately 80% of thousands of large chemical companies and projects are set up aside rivers or other water areas, and 45% have been labeled severe risk sources. However, EIL insurance in China is still at an initial stage and corresponding polices rules and regulations are nearly absent.
However, at the present stage, such insurance products failed to sell well and it was difficult to extensively promote such insurance products. Insurance litigation concerning environmental liability mainly concerned Maritime Oil Pollution Insurance, regulated by the Maritime Code of the PRC, Chinese Insurance Law, the International Convention about the Civil Liability for Oil Pollution Damage 1968 and other regulations issued by the China Insurance Regulatory Commission (CIRC). Additionally, relevant cases are extremely limited. The only remarkable case is the chlorine hydride leakage accident of Haohua Company, who purchased EIL insurance from Ping An Property Insurance Company.
Situation s like the one above may arise due to the following:
First, local governments consider EIL insurance, especially when it’s compulsory, may bring local enterprises heavier burden and decrease their fiscal revenue, impacting the development of local economy.
Second, most enterprises know little about EIL insurance and lack the consciousness of environmental protection and the management of EIL exposure.
Third, insurance companies have no passion and experience for the development and promotion of their EIL productions. Presently existing EIL productions have narrow coverage and value but retain high insurance premiums. Additionally, there is yet no uniform technical standard and system on claim settlement and damage evaluation adopted by each insurance company.
Last and also the most important, is the lack of relevant of regulations and rules. This includes:
a) Chinese environmental laws and regulations failing to provide definite and strict punishment against those responsible for pollution and destruction. This encourages enterprises’ to disregard environmental protection
b) There is no specific regulation or rule on EIL insurance and EIL insurance is not compulsory.
Under the above circumstance, once pollution occurs, the liability of relevant enterprises for compensation and recovery would not be fulfilled due to lack of a valid guarantee system, causing the increase of social instability and burden.
Fortunately, SEPA and the CIRC jointly issued the Guiding Opinion of the State Environmental Protection Administration on the Environmental Impairment Liability Insurance (the Guiding Opinion) at the end of 2007. Although the Guiding Opinion is not a mandatory regulation, it presents the attitude of the Chinese government on EIL insurance and gives a clear plan of its development in the near future. According to the Guiding Opinion, a basically complete EIL insurance system will be finished before 2015; provisions on EIL insurance will be added to state and local environmental regulations and rules; and even a specific regulation will be made when condition allows.
It is expected EIL insurance in China will make a big move in the near future. Both Chinese and foreign insurance companies should also move quickly to meet the forecasted demand.