NEW YORK, April 2, 1996 — The property/casualty insurance industry paid more than $12 billion for environmental and asbestos (E&A) claims and associated legal costs from 1991 through last year. Over one-quarter of those costs were paid in 1995.
The figures released today by Insurance Services Office, Inc. (ISO) are based on its analysis of E&A data, which many insurers reported publicly for the first time. State regulators required insurers to report their E&A losses starting with their 1995 statutory financial statements.
ISO's analysis also shows that at year-end 1995, insurers' reserves totaled about $27 billion for E&A claims and legal costs. About $16 billion, or 60%, of these reserves are earmarked for environmental claims. The rest of the reserves cover anticipated asbestos-related losses.
ISO also reports that from 1991 through 1995, insurers incurred $30.6 billion in E&A costs. Last year accounted for roughly one-third ($10 billion) of that amount. "Most of these incurred losses are related to policies written before 1986," said ISO Vice President John J. Kollar. (Incurred losses represent payments and increases in estimates of future payments.)
These E&A losses have increased the industry's combined ratio by 2.5 points, on average, over the last five years. In 1995, E&A losses contributed 4 points to the industry's combined ratio of 106.3.
Recent estimates by other organizations of insurers' ultimate environmental losses (in undiscounted dollars) range from $25 billion to $91 billion for abandoned hazardous waste sites alone and from $30 billion to $50 billion for asbestos.
ISO's analysis shows that paid losses from 1991 through 1995 plus reserves at year-end 1995 amounted to $22.8 billion for environmental claims and $16.3 billion for asbestos claims. "It's difficult to make a direct comparison of ISO's figures with estimates of ultimate losses," Kollar cautioned, "Because ISO's figures, while based on hard numbers, don't include losses paid before 1991, but do include more environmental losses than just abandoned hazardous waste sites and asbestos."
ISO's analysis is based on a new note — Note 24 — to the 1995 Annual Statement that insurers submitted to state insurance regulators. Note 24 does not require reporting information on payments prior to 1991.