Learn about successful risk and insurance professionals and how they rose to the top of their industry. This article features environmental specialist Michael O. Hill.
How did you land in the insurance and risk management field?
I started as an attorney, first at the Department of Justice and later as a partner in a large DC firm. About 20 years ago, one of my clients pioneered the offering of insurance-backed, fixed-price cleanups and liability transfers, and I quickly learned a lot about environmental insurance. It was an idea whose time had come, and the client's stock price rose tenfold over 4 years, attracting a lot of other very good remediation firms into the field.
In 2002, with the field having grown to roughly 10 remediation firms, Marsh asked me to lead a new national program within its environmental practice, focused on insuring fixed-price cleanups. I liked the idea of moving to the business side of environmental work, so I left my law firm and entered the world of brokering. Marsh later asked me to lead its environmental practice as a whole, so I learned a lot about the full range of coverages (for lenders, contractors, tank owners, etc.).
Why is Alba a law firm, as well as a surplus lines insurance brokerage?
It almost has to be. Because environmental insurance is a "surplus line" of insurance, environmental policies receive no insurance commissioner or other regulatory review of their language, so each policy must be individually manuscripted and with accompanying legal advice given. This is true to the same extent as any other complex contract. That manuscripting and advice are, by any standard, the practice of law. So, while I was still in a brokerage that was not also licensed as a law firm, clients could not engage me for those aspects of the work. That meant that, unless they had internal counsel with environmental insurance expertise, clients had to engage a law firm as well as a brokerage.
That started to change in the early 2000s when, first in the District of Columbia and then around the country, legal ethics codes modernized to allow law firms to offer multidisciplinary services (for example, law and brokering) provided that, among other requirements, the firm abides by legal ethics rules in all aspects of its practice. Code writers recognized that it often helps clients to be able to obtain legal and brokering services from one firm. In addition to the efficiencies, it offers the added protections that brokering must be done in accordance with legal ethics rules (for example, with full disclosure of conflicts while preserving confidences). Another potential but important benefit is the protection of confidential information from third-party discovery.
With the code modernization, I realized that if I worked in a multidisciplinary firm, I could offer clients legal as well as brokerage services. To do that, in 2004, I started Alba, the first and, to my knowledge, still the only multidisciplinary law firm and environmental insurance brokerage. That merging became even more important with the increased importance of captive insurance as an option for environmental coverages (something I discussed in a 2016 IRMI article, "Fixed-Price Contracts Using Cost-Cap Alternatives for Environmental Cleanup").
What has been the most rewarding experience in your career?
In 2010, I was nominated by the Council on Environmental Quality to help set up and then manage the nearly $800 million trust created by the federal government and 14 state and tribal governments to remediate and/or redevelop the 89 properties left behind in the 2009 General Motors bankruptcy. While taking an 80 percent part-time leave from Alba, I served as the trust's chief operating officer and general counsel and also oversaw risk management. The experience enabled me to work with federal, state, and tribal regulators who, particularly given the strict limits of the trust's resources, worked closely with us in an extraordinarily constructive manner to accomplish cleanups and job creation.
How do you describe the industry's impact on the US economy?
Insurance is, of course, integral to almost all aspects of the economy. Although over 90 percent of insurance policies sold—homeowners, auto, general liability, etc.—are issued on policy forms whose language is largely set in stone by state insurance commissioners and that can take years to change, environmental insurance presents a wide frontier of opportunity to provide better coverages now. This provides stability and creating a favorable climate for businesses in the contexts of cleanups, clean energy, carbon sequestration, and more.
What is the most important challenge facing the environmental insurance industry?
I'd say there are two. The first involves reinvigorating (and making sure people are aware of) cost cap coverages, something that many people believe vanished in 2011. Cost cap allows fixed-price cleanups that, since 2011, are rarely done at any scale, and it enables companies to more accurately and defensibly quantify their environmental liabilities and then have those liabilities better managed going forward.
Cost cap coverage and related fixed-price cleanups are particularly needed in the context of mergers, acquisitions, sales, and even spinoffs to enable industrial companies to better manage their environmental obligations so they can focus on their core business. Finally, they can help settle facility closures (such as power plants and coal mines) and even bankruptcies.
The second challenge is developing insurance products that help slow or even reverse the rate of climate change. Climate insurance must go beyond products that respond to the effects of climate change (e.g., flood or drought) to support actions that slow or reverse the change itself, such as large-scale solar; offshore wind; forest preservation, biochar, and other carbon-sequestering measures; and transportation changes, such as pay-as-you-drive policies or driverless cars.
These challenges will likely require a public-private effort or at least coordination, just as the government has supported the availability of insurance for nuclear power since the 1950s. Simple examples might be the expansion of states that allow pay-as-you-drive insurance policies or federal subsidies for protections against catastrophic risks related to offshore wind.
How do you and your firm give back to the community/industry?
We start by doing the best work that we can for our clients. Although given its unique structure (Alba is small), we have served as a broker, counsel, and/or consultant for cleanups involving thousands of acres and over 40,000 jobs. For larger projects, we draw on a flexible network of outstanding talent. We've also published papers, spoken at conferences, and served as expert witnesses or consultants in judicial, regulatory, and administrative proceedings, helping to improve or simply explain environmental risk transfer.
We also do our share of pro bono or reduced-rate work for nonprofits or others unable to pay full rate or anything at all. For example, we are helping a nonprofit by providing expert testimony to a utility commission evaluating a proposed transfer of liabilities associated with the decommissioning of a nuclear power plant. The client's goal is not to stop the transfer but to ensure that lessons from the 20-year context of transfers of liabilities of nonnuclear pollutants are applied in the nuclear context.
Though not suitable for all sites, fixed-price cleanups are a public good. On average, they avoid litigation and expedite cleanups without sacrificing quality. A 42-site Department of Defense (DOD) study 1 shows average costs are 20–30 percent below initial estimates, as compared to traditional DOD contracting where costs are typically on the order of 60 percent above such estimates. In a March 2013 report, 2 the Environmental Protection Agency's inspector general urged the Environmental Protection Agency to increase fixed-price contracting for remedial actions.