Cleaning up-literally-in the insurance industry
It isn’t listed in the Fortune 500. It doesn’t trade on the New York or Nasdaq stock exchanges. And it hasn’t crowned itself in glory with its name on a gleaming skyscraper or some spectacular sports palace. But with $25 billion in backing, it’s one of the largest financial institutions in the world. It’s the Water Quality Insurance Syndicate (WQIS)-a pool of 17 major property and casualty insurers that invests its dollars everyday to protect the world’s waterways and marine life against pollution.
But providing marine pollution insurance is only part of the WQIS story. It’s companion organization-the Marine Pollution Response Group -manages on site the cleanup of oil and other hazardous spills, guaranteeing that waters, beaches and marine life will be restored quickly and efficiently to their pristine state.
This one-two punch has earned WQIS and MPRG credentials as true guardians of the sea and has made the insurance industry a visible, influential and respected part of the solution for a cleaner, healthier and safer environment.
As WQIS celebrates its 30th anniversary, Richard Hobbie, president, reflects on its role and future-a future he sees tied, in part, to expanded contacts with agents and brokers.
WQIS, says Hobbie, was founded in the wake of two devastating oil spills. The first involved the Torrey Canyon off the Scilly Isles in 1967 in England that contaminated more than 200 square miles of sea and 90 miles of coastline. If the spill was a horror, says Hobbie, the cleanup was downright frightening: Royal Air Force planes dropped napalm bombs to burn off the oil and sink the ship. Tailor-made for television’s fastgrowing international news coverage, the shocking pictures beamed around the world set off alarms among environmentalists from the Arctic to the Amazon. “If there was one event that set in motion the worldwide
environmental movement, this spill was probably it,” says Hobbie, a former Coast Guard officer.
Two years later the United States grabbed the headlines with a blowout from an oil platform off Santa Barbara in California. While not on the scale of the Torrey Canyon, the spill had farreaching implications. Because there were no marine pollution laws, local residents were stuck with the cleanup costs. That would soon change. Over the next two decades marine pollution would be wrapped in layers and layers of legislation: providing strict liability for cleanup costs, third-party liability damages and civil and criminal penalties-all of which would become core WQIS coverages.
“For the first time, if you spilled oil, you had to pay for cleanup,” says Hobbie, noting that vessel owners previously were liable only if the spill was intentional or involved gross negligence.
For insurers, the challenge was to provide the cleanup coverage needed by clients without exposing themselves to huge individual payouts. But their concerns went beyond just payouts. They began to see marine pollution coverage as a highly-specialized line requiring expertise in vessel risk management, sizeable financial guarantees and responsibility for cleanup management. So WQIS decided that this emerging market would be best served by a syndicate dedicated solely to marine pollution insurance, staffed by specialists, with the costs of cleanups spread proportionately among its members.
The result was WQIS, which opened for business in 1971. The organization rapidly rose to prominence in the industry-spurred by its ability to quickly create coverages for the ever-expanding and legally-driven areas for costly claims.
Today, WQIS is the largest underwriter of marine pollution insurance in the United States. Generating more than $20 million in annual premiums, its policies cover some 40,000 vessels: tugboats, oil, cargo and work barges, ferries, fishing and pleasure boats. Called brown water vessels, they ply mainly inland waterways teeming with other commercial and pleasure traffic-providing real tests for underwriters. But WQIS also has had its share of “glamour” accounts. One was the Howard Hughes-owned Glomar Explorer which secretly salvaged a sunken Russian submarine during the Cold War. Another was the Andrea Gail, a commercial fishing boat that went down with all hands off The Grand Banks in Nova Scotia and was memorialized in the book and film “The Perfect Storm.”
The policies also cover related facilities such as shipyards and marinas. In addition, WQIS is the leading provider of the Certificate of Financial Responsibility (COFR) requiring owners and operators of vessels over 300 GRT carrying oil in U.S. waters to demonstrate that they can pay for a prescribed amount of a cleanup. Despite the high risks involved, WQIS continues to offer policies with a fixed premium, has not raised rates in five years, and still returns a profit to its subscribers-due in part to selective underwriting as well effective loss prevention programs conducted for its clients.