Why Does a Bank Need Environmental Risk Insurance?

Banks and those who work at them may not think their company or industry is synonymous with anything environmental. Thoughts of greenhouse gases and landslides may come to mind, so why would a bank need to worry about that? In fact, potential environmental problems on collateral property represent one of a bank’s largest risk exposures. Environmental risk insurance has been underwritten for decades. This is due in part to pollution and environmental contamination exclusion in most general liability policies that banks currently have.

If there’s a discovery of previously unknown contamination, this can cause a property’s value to drop and bolster remediation costs far beyond the remaining value derived from the property. Costs can quickly add up and banks could find themselves in a major financial crisis. Banks should carefully assess their environmental risk before they inherit costly environmental problems. Here are some things to consider when it comes to bankers environmental risk insurance.

Look at Risk Levels

In some industries, environmental insurance acts as an enabler because most investors require it. This is where bankers environmental risk insurance comes in handy for financial institutions. There needs to be an effective amount of due diligence performed in order to best assess the risks a bank poses in the environmental risk realm. There are certain policies to consider including regulatory, bank and risk of a loan.

  • Regulatory: Regulatory policy is determined by the FDIC and the OCC. The policy requires that banks uphold a written environmental risk policy and adhere to it. All banks are required to meet this regulation and keep up-to-date on the policy and the changes made to it.
  • Bank: No two banks are made the same, therefore the risks they pose can differ. Risk tolerance profiles are specific to each bank, just like how bankers insurance is personalized to each bank who invests in it. A bank should be familiar with their specific and finite policies to ensure they comply with them.
  • Overall Risk: From property size to loan size to previous land use, each loan carries different levels of environmental risk. Working with a large industrial complex? What about a mid-sized residential multi-family property? Then you’ll have to have a different approach for both as they carry very different risks.

When figuring out the best bankers environmental risk insurance policy, be sure to have some knowledge of what risks your institution is involved with. Be diligent about these risks and work with your insurance provider to personalize a package that can help to financially protect your assets in the middle of environmental issues that can befall your properties.

About Financial Guaranty Insurance Brokers

Since 1983, Financial Guaranty Insurance Brokers has distinguished itself as a provider of Professional Liability, Cyber Liability, and Crime insurance products for entities of all types. To receive timely, personalized service from a knowledgeable and experienced staff, call us today at (626) 793-3330 to speak with one of our professionals.