As it usually happens in the aftermath of major ecological disasters, following the Hungarian red slugde spill official bodies hurried to review their approach to environmental liability. Just days after the catastrophe, the European Commission published a report on progress in implementing the Environmental Liability Directive (ELD). On paper, CEE leadership in the environmental protection sphere is undoubtful: countries of the region, especially Hungary, have met all key EDL requirements, sometimes bordering on their overfulfullment. Reality, however, seems strikingly different.
The EC directive, which stipulates that full costs of enviromental damage prevention and clean-ups should be born by the polluters (or, in the Brussels lingo, ‘operators’), came into force in April 2004, subject to approval by each individual member state. In three years, when the implementation deadline approached, only four countries of the region met it. Three of them – Hungary, Latvia, Lithuania – were CEE-based.
Several EU member states, according to the October EC report, have given a “particularly broad scope“ definition of ‘operator’, i.e. expanded the list of potential polluters that could be held accountable for the environmental damage they cause. And again, five out of the seven countries were situated in Eastern Europe, Hungary among them.
The commissioners decided against an EU-wide scheme that introduced compulsory financial protection against environmental risks. However, Hungary, together with Bulgaria, the Czech Republic, Slovakia, Romania, and three Southern European countries announced they would introduce the scheme on an individual basis by 2014.
Finally, estimating the degree of EU states’ preparedness to deal with environmental damage, comissioners praised Hungarian legislative guidelines and approaches to technical and economic valuation of environmental damages, likening the standards to those in France, Denmark and the UK.
Reality seems to be strikingly different from the picture the EC painted in its October report. (Re)insurance professionals across the world gasped at the indemnity sum under MAL’s liability insurance contract – according to various sources it reached USD50,000-100,000. In the meantime, Guy Carpenter estimated economic losses due to the spill at “tens of millions of euros”. According to Janez Potocnik, EU environmental comissioner, these would be just clean-up costs alone.
Under the government’s pressure, MAL owners, some of the richest people in Hungary, set up a compensation fund – but it amounted to just EUR5 million, with payments spread over the next five years. The remaining losses have been and will be born by the country’s taxpayers.
Hungary is unlikely to be a CEE exception when it comes to handling eco risks. Brokerage and reinsurance experts polled by The Insurer are rather sceptical about the overall progress regional states have made in developing valuation standards of ELD-related losses. The professionals point out to low indemnity limits even for large industrial risks, insuffiscient risk surveys and relative unpopularity of environmental liability coverage in general.
Why such visible discrepancy between the experts’ and the commissioner’s views? It seems that either the EC in its October report has been too lenient to Eastern European member states, or the ELD in general does not set technological and technical standards high enough to ensure proper coverage of environmental risks. Either way, the Directive is highly unlikely to have a meaningful impact on ecological risk prevention or mitigation in the CEE region, so the paper is basically useless.
One, however, can expect a sharp turnover in the Hungarian market for environmental risk insurance. As Victor Peignet, CEO of Scor Global P&C, opined in a conversation with The Insurer during his visit to Moscow this fall, demand for enviromental protection is likely to grow among Hungarian operators. The country’s government, unwilling to provide financial assistance to victims of further accidents, will likely encourage local companies to purchase industrial liability coverage, he said.
So, it seems that despite EU efforts to promote sub-national process of implementing ecological security standards, the state so far remains the only real force behind making the difference – at least in the CEE region.
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