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India turns into a green pasture for pollution insurers

India turns into a green pasture for pollution insurers

New Delhi: Pollution liability insurance is growing into a market in India, as firms look to protect their operations and reputations from new laws that punish industrial contamination.

Insurers such as Tata AIG General Insurance Co. Ltd and Marsh India Insurance Brokers Pvt. Ltd are offering to cover firms whose effluents cause gradual harm to property, as well as pay for bodily damage in cases of accidental outbreak.

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Until now, Indian laws have been notoriously lax in penalizing industrial polluters—the 1984 Bhopal Gas Tragedy in which a toxic leak from a Union Carbide India Ltd plant caused thousands of deaths being a case in point.

But with the government now instituting regulations such as the Environment Protection Authority and National Green Tribunal (NGT), which will have the same powers as a civil court to redress environmental disputes, a number of companies want to play safe and opt for insurance cover.

Tata AIG, part of the Tata group, announced a pollution liability policy last month, which covers a company against any damage of property or bodily injury to a third party. It also pays the company the cost of decontaminating the environment up to the regulatory norms. Crucially, the policy even covers pollution that occurred before a company signed up for insurance, but was discovered later.

“Earlier, policies paid claims only if the impact of pollution was felt within 72 hours. It then increased to five days," said Gaurav D. Garg, chief executive and managing director, Tata AIG. “But now, we have done away with the limit. We cover third-party damages, the cause of which damage can be traced to the incident."

Indicatively, the premiums for this policy range between 1% and 4% of the sum insured. “Companies take a cover from Rs5 crore up to Rs25 crore," Garg said. He declined to name clients or the number of such policies sold on grounds of confidentiality.

ICICI Lombard General Insurance Co. Ltd has submitted a similar policy for approval to the Insurance Regulatory and Development Authority, a person familiar with the development said on condition of anonymity. Officials were unavailable for comment.

Marsh India, an affiliate of Marsh Inc., one of the world’s largest insurance brokers and risk advisers, also offers re-insurance cover for environmental liability from four foreign companies, Ace European Group, Chubb Corp., Liberty International Underwriters and XL Insurance Co. Ltd.

Indian companies have largely avoided punishment for causing pollution, unlike firms in, say, the US, where they attract huge penalties and punitive damages.

A notable exception are the tanneries in Vellore, Tamil Nadu, which were held responsible for widespread contamination. Damages of Rs26.82 crore were awarded in 2001 to 29,193 families owning 15,164ha of agricultural land in 186 villages.

Cliff Warman, environmental practice leader (Europe, West Asia and Africa) for Marsh, said although general liability policies can write an environmental component, they usually have a pollution exclusion.

“Historically, these policies were quiet on pollution. The problem has been over time, especially with experiences in the US and EU (European Union). With asbestos and waste cases, costs have become enormous and every general insurance company has started to exclude the amount of pollution cover they will include in general insurance," Warman said.

Companies in sectors such as power, heavy manufacturing, oil and gas, cement and steel mostly looked for such policies, Warman said. “The opportunity here is obvious but also, clients are actually asking for it. This is generally driven by change in regulation or increase in severity of regulation around environment. Also, now we see cases where companies are being taken to court for environmental damages. So clients are asking how are we covered for this risk," he added.

Marsh’s research shows there have been about 50-60 clean-ups a year in the past decade, in India. Warman said most clients looked for a cover of $10-30 million (Rs46-139 crore). “To give a perspective to that, the total insurance market globally has probably $200-250 million capacity for one policy."

Some activists said it is difficult to link pollution liability to a particular company. “It’s (insurance cover) a good principle, but I don’t know if it is practical, given the fundamental weakness in regulation. Plus evidence is a big part of this," said Leo Saldanha, coordinator, Environment Support Group, a Bangalore-based activist group.

A year ago, Saldanha had filed a complaint with the Karnataka State Pollution Control Board when some hospitals had dumped biomedical waste near his house.

“The process is very lengthy and tardy. They finally paid Rs3.5 lakh, but only for clearing the dump. The question is, what is the contamination liability and how do you prove it?" asked Saldanha.

Recently, the government tightened regulation such as ambient air pollution limits. It had failed to set up a National Environment Tribunal in 1995.

But lawyers expect the number of pollution claims to rise once NGT comes into being. “Till now, courts have been conservative on pollution liability cases. But with NGT, which also covers the Public Liability Insurance Act, the number of cases can increase," said Ritwick Dutta, a Supreme Court lawyer who specializes in environmental law. “The lack of an environmental court meant it (a case) had to go to district collectors, who really don’t have the capacity for such cases."

Aparna Sawhney, associate professor, Centre for International Trade and Development, Jawaharlal Nehru University, said growing awareness had also turned environment friendliness into an image issue for companies.

“If you are a big enough business, then you do want to project a green image. If there is possibility for mileage or goodwill, it does act as an indirect measure," she said. “Another thing is environmental ratings, which also matter only for bigger companies."

Warman agreed. “If you look at multinationals, just because regulations here are not adhered to doesn’t mean that they won’t be doing something anyway," he said. “Just because the regulator might not come knocking on my door isn’t a reason for not doing anything. They would rather do more than nothing."

Graphic by Rahul Awasthi; Photo by Madhu Kapparath/Mint

Deepti Bhaskaran and Sanjiv Shankaran contributed to this story.

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