China to make pollution insurance mandatory for eight polluting industries

On 9 June, 2017, China unveiled a draft regulation for public feedback, which requires polluting industries to have pollution insurance (or in full: environmental pollution liability insurance).

According to the draft guideline, jointly released by the Ministry of Environmental Protection (MEP) and the China Insurance Regulatory Commission (CIRC), companies in eight sectors – including:

• Oil and gas exploration
• Those involved in processing hazardous materials or chemicals (including radioactive waste) and,
• Those involved in the production of active pharmaceutical ingredients

will need to buy compulsory environmental pollution liability insurance.

This draft regulation is open for public feedback until July 10, 2017, and will need to be approved by the State Council, China’s cabinet. Read on to learn more about pollution insurance and the new draft guideline.

What is pollution insurance?

Originally introduced in industrialized countries in the 1960s, pollution insurance covers costs related to pollution, e.g. brownfield restoration and cleanup, and liability costs for pollution-related injuries and deaths. This type of insurance was originally introduced with these three main objectives:

• Protect companies from bankruptcy by spreading the risks of environmental pollution
• Compensate victims of pollution
• Incentivize polluters to reduce and prevent environmental damage through lower premiums

At present, pollution insurance is applied in many countries to control environmental risks. That said, the implementation of this type of insurance is especially prevailing in developed countries like the US, and the UK.

Why it’s important to consider pollution insurance

Not having an environmental pollution liability insurance policy in place can leave your business vulnerable to a myriad of pollution liability and environmental risks. Aside from the impending rules, it’s important that you consider securing a comprehensive pollution insurance policy for your business to ensure you have the right protection to address all pollution-related risks.

Key coverage elements

When buying an environmental pollution liability insurance policy from Pacific Prime China, you can expect the following main policy coverage elements:

• Accidental damage to the environment
• Bodily injury or death
• Financial loss due to the investigation, examination, cleanup and control costs of environmental damage
• Litigation from other businesses or persons
• Liability coverage against financial losses incurred from lawsuits

For more comprehensive protection, businesses can also opt for additional coverage elements, such as:

• Costs incurred from being sued for mental and emotional damage due to pollution
• Extend coverage to surrounding areas by up to X km (to be defined by either the business or insurer based on needs)
• Liability caused by natural disasters (excluding earthquakes and tsunami)
• Costs associated with cleaning the insured site

New mandatory pollution insurance requirements

The new guideline regulation by the MEP and CIRC requires environmental pollution liability insurance to cover bodily injury or death, property damage and environmental impairments, as well as emergency treatment and clean up costs. Insurers will be exempt from covering damages caused by natural disasters, environmental pollution crimes, illegal discharging of pollutants, as well as unaddressed environmental safety hazards.

Companies that fall under the eight sectors who fail to buy mandatory pollution insurance could face hefty fines starting at RMB 30,000. The guideline also requires insurance companies to issue an environmental risk assessment report before signing insurance contracts. This new implementation plan comes at a time when the Chinese government is looking to step up their efforts in fighting pollution nationwide, amidst ever-increasing pollution-related costs of up to 3% of the country’s GDP each year.

The need for environmental pollution liability insurance in China

Since 1980, China has experienced a rapid economic growth with an average annual Gross Domestic Product (GDP) increase of over 9.8 percent. During the same time period, there has also been a rapid increase in environmental management problems and environmental pollution accidents, caused primarily by the inadequate control of pollutants. As a result, China is now home to 7 of the 10 most polluted cities in the world. In 2012 (the latest figure available), China lost RMB 1.2 trillion due to environmental pollution.

To solve the nation’s pollution problem, China has been searching for different ways to better manage the environment, including the introduction of environmental subsidies, emission trading, and most recently pollution insurance. The Chinese government first introduced the idea of environmental pollution liability insurance in 2006, and launched pilot projects covering a number of sectors such as heavy industry, and heavy metals. According to Wang Guojun, an insurance professor at the University of International Business and Economics in Beijing, the pilot projects, which required businesses to buy pollution liability insurance in some regions from 2013 onwards, have yielded positive results.

The 2015 Environmental Protection Law

In 2015, the Environmental Protection Law came into effect, and has a clause stating that businesses are “encouraged by the state” to have pollution liability insurance. Despite this, many businesses are arguing that there’s no legal mandate to impose such policies. The renewed push in 2017 for pollution liability insurance shows enhanced realization among key policymakers for the pressing need to protect the environment instead of solely prioritizing economic growth.

Looking for the ideal environmental risk management solution for your business? To learn more, be sure to get in touch with the experienced advisors at Pacific Prime China. Our team of experts are on hand to provide their unbiased advice on finding the best plan for your needs, as well as give you a free quote.

Disclaimer: Pacific Prime China solely represents, operates and manages locally regulated insurance products and services in the territory of PR China. Any references to Pacific Prime Global Company or Group, the international services, insurance products or otherwise stated written or verbally, is for introduction purposes about our overseas network only as each entity is fully independent.