The Federation of European Risk Management Associations, which represents risk managers in 20 European countries, has told the European Commission that it is opposed to the creation of a fund to cover environmental liability and losses resulting from industrial accidents.

FERMA was responding to a consultation exercise by the Commission following a proposal from the government of Hungary for the establishment of a compensation fund, partly in response to a major industrial accident in October 2010 that involved a spill of around 1m cubic metres of red sludge and alkaline water.

FERMA secretary general Pierre Sonigo, who is responsible for FERMA’s environmental liability activities, says there are several reasons why a fund is not needed and could even increase the risk of pollution. “It is contrary to the polluter pays principle established in the Environmental Liability Directive,” he stated. “It is even likely to work against the process of risk management, rather than encouraging companies to take responsibility for the consequences of their own activities.”

He added: “In most of western European, there is good insurance coverage for environmental pollution risks including for environmental damages. Where the market is not so sophisticated or business finds the price unacceptable, it is not right to create a fund so that other countries should pay to share a risk which should be managed locally.”

FERMA has given the following reasons for its position:

  • National environmental regulations are already strong and strictly enforced.
    Regulators are diligent in their enforcement of legislation. FERMA members say that environment risks are included in their companies’ risk management strategy.
  • Insurance is available
    There is already good coverage available in the commercial market for traditional environmental liability risks and remediating environmental damage. A fund would interfere with further development of this market.
  • No one size fits all
    Many variables affect environmental risks and their insurance, and it would be impossible to ensure the fund was suitable for all. FERMA does accept, however, that special solutions may be appropriate for SMEs or specific industries.
  • Increase in the risk
    A fund could reduce incentives for businesses to take responsibility for the consequences of their activities. The mechanism proposed for the fund would give no credit for prevention efforts or a good claims history. It would also contradict the “polluter pays” principle of the European Liability Directive (ELD).
  • Distortion of competition
    An added tax to fund the scheme would increase the production cost of goods in the EU.

FERMA has recommended that instead the Commission should:

  • Promote awareness of available insurance coverage and other financial tools for risk management, such as self-retention
  • Reduce taxes on environmental insurance policies
  • Initiate a European data base of environmental claims within the scope of the ELD.
  • Promote better risk management in the industrial sector