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Environmental Challenges in China

Environmental Challenges in China. Pollution and Beyond. Karl J Russek Senior Vice President, Environmental Risk ACE Overseas General. Key Objectives. Outline some key factors leading to the rapid development of environmental risk in China.

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Environmental Challenges in China

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  1. Environmental Challenges in China Pollution and Beyond

  2. Karl J Russek • Senior Vice President, Environmental Risk • ACE Overseas General

  3. Key Objectives • Outline some key factors leading to the rapid development of environmental risk in China. • Discuss the current state of Environmental Regulation and Environmental Insurance in China. • Outline developing trends and troubling gaps in the current regulatory approach to insuring environmental risk in China.

  4. China’s Unprecedented Rise:Not Without Consequences for its People • Largest rapid industrialization in history = Largest human migration in history. Almost 1bn people have migrated from the countryside to urban centers. • Offshoring of vast chunks of US/EU industry was not solely due to lower labor costs. Heavy industry, basic chemicals, etc. = disproportionately polluting industries + coal for power generation • Major air, water and soil pollution issues, soaring cancer rates: Pollution estimated to kill ~1.3M people per year (Source: the Lancet) • Changing Demographics.China’s population is increasingly aging (though still quite young), better paid, better educated, and better connected

  5. Government Forced to Respond Large growth can’t be sacrificed • Energy: Massive investment in nuclear and renewables. Solar and Wind + modernization and efficiency of other sources. Next: unconventional gas? • Increased regulation and stepped-up enforcement of existing rules. Criminal penalties, strict liability, “polluter pays” : all strong on paper. Enforcement in practice? A matter of political will. • Financial Mechanisms: Conditions for financing, securities rules, financial assurance requirements • Compulsory Insurance: Pools established for specific regions

  6. Compulsory Pollution InsuranceManaged on a Provincial Level • Pilot programs in nine provinces & two municipalities • Targets certain industries (those deemed heavy polluters by the government) • Low limits • Coverage limited to sudden & accidental trigger only • Each Insurance Pool consists of several local insurers • No meaningful risk selection • No loss control services provided by the provincial schemes

  7. Remaining Gaps and IssuesSignificant questions remain… • Provinces focused on what was politically possible. • Current legal context imposes Strict Liability and mandates cleanup, however: • The approved scheme coverages are extremely narrow (e.g. Sudden and Accidental). • There is typically no provision for first-party cleanup. • Individual policies must be purchased within each scheme. • Broad 1st and 3rd party “U.S.-Style” pollution cover IS available in China for firms who apply a global EHS standard. • Can this be used to satisfy local requirements? Open question. • The most significant risk CAN still be transferred, however.

  8. Questions? Contact Information: Karl J Russek Senior Vice President, Environmental Risk ACE Overseas General 100 Leadenhall Street, London, EC3A 3BP. T +44 (0) 20 7173 7541 M +44 (0) 77 66 99 44 78 Karl.Russek@acegroup.comwww.acegroup.com

  9. Many Thanks!

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