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Expertise

Cost Cap Insurance

Assuming the risk of cost overruns on environmental cleanup projects, creating post-transaction cost awareness.
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Confidence

Unanticipated costs have been considered and planned for throughout the project lifecycle.

Compliance

Ability to cover project cost variance even if regulatory requirements change.

Expertise

Specialists who can help assess your need and secure a risk transfer solution.

Many companies have obligations to perform environmental cleanup projects or so called “remediation.” Like all capital projects, clean-up projects are subject to cost uncertainty and cost overruns. All too often, this risk is self-insured and fully borne by the company. But there is an established environmental insurance market that provides coverage using a “cost cap” or “remediation stop loss” policy specifically designed to cover cost overruns on environmental cleanup projects.

The cost cap solution

Cleanup projects are like all other capital projects in that they have a scope of work, assumptions, and forecasted costs. But in many ways, these projects are inherently subject to greater risk as a result of the following factors:

  • The nature and extent of the pollution often cannot be seen visually and has to be inferred (or projected) from borings and wells which can have a significant distance between points both horizontally and vertically.
  • The remedial technology combines elements of science, intuition, and art such that the efficacy, the amount of materials needed, and time to complete can yield great uncertainties with regard to incurred life-cycle costs.
  • Remedial budgets are the professional best estimate of the engineers involved. The same facts provided to two different engineers can often yield different opinions on remedial approach, timing, and ultimate cost. This disparity in opinion is often made evident through due diligence on property transfers, with brownfield redevelopment, and during mergers and acquisitions.

The cost cap risk transfer solution responds to a variety of causes for overrun, including but not limited to:

  • A change in the remedy as required by regulators
  • Increased volumes encountered
  • Increased units rates or amount of materials needed
  • More labor required or elevated labor costs
  • A longer period of time, and associated costs, necessary to complete remediation

To secure coverage, insurers review the proposed scope of work, detailed cost estimates, and the project schedule. Based on the evaluation of the project information and expected remedial costs, the insurer will calculate a self-insured retention or attachment point for costs to be borne by the project owner prior to response by the insurance policy.

The attachment point is a function of the expected cleanup costs plus the “buffer” layer, or additional self-insured risk, which is typically calculated based on a percentage of the projected cleanup estimate. Insured costs incurred above the attachment point are covered up through the limits of liability purchased through the insurance policy.

Marsh’s Environmental Practice has specialists with deep expertise involving remediation projects and cost cap insurance. We can assist you in identifying where this solution is viable and help secure coverage with the best possible terms and lowest possible attachment point.

Why Marsh

As an industry leader in providing environmental placement and claims solutions, our team handles more than 500 claims annually and has advocated on more than 2,500 claims in the past five years. Among our 40 dedicated environmental colleagues, nearly half have received Risk & Insurance’s Power Broker award, a designation given to risk management professionals based on demonstrated excellence in solving insurance-related issues, per client testimonial.

Our expertise and solutions

Environmental Risks in Mergers & Acquisitions

Redevelopment of Contaminated Properties

Balance Sheet Liabilities

Contracted Operations

Corporate Restructuring and Refinance

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