On 21 February 2013, the Ministry of Environmental Protection
(MEP) and the China Insurance Regulatory
Commission (CIRC) jointly promulgated the
Guiding Opinions on Pilot Scheme for Compulsory Environmental
Pollution Liability Insurance ("Guiding
Opinions"), which for the first time, requires
compulsory purchase of environmental pollution liability insurance
by enterprises with high environmental risks.
Enterprises to participate in the pilot scheme
Enterprises in the following industries which create and
discharge heavy metal pollutants are required to purchase
environmental pollution liability insurance on a mandatory basis:
non-ferrous metal mining and smelting
lead battery manufacturing
leather and related products manufacturing
chemical materials and products manufacturing
The Guiding Opinions also state that environmental pollution
liability insurance must be purchased if it is required by any
In addition, the Guiding Opinions encourage the following high
environmental risk enterprises falling outside the above categories
to purchase environmental pollution liability insurance: -
enterprises in petroleum and gas mining and chemical
enterprises which produce, store, use, sell and/or transport
enterprises which create, collect, store, transport, use and/or
dispose hazardous waste
enterprises discharging dioxins which may cause great
other high environmental risk enterprises as determined by the
Insurance policy and premium rates
The Guiding Opinions state that insurance companies shall
reasonably design the environmental pollution liability insurance
policy wording and determine the rates. In addition, it is also
required that the insurance coverage shall include: -
i. personal injury, death or property loss caused to any third
party by pollution;
ii. necessary and reasonable expenses incurred by the insured to
save any third party's life or to prevent or mitigate the loss
of property of any third party;
iii. necessary and reasonable clean-up costs incurred by the
insured to control pollutant diffusion or to clean up pollutants in
accordance with environment protection laws and regulations;
iv. insurance indemnity as otherwise agreed between the
policyholder and insurer.
Insurance companies may, either by themselves or through a third
party, assess the environmental risks of the companies to be
General measures to implement the pilot scheme
Enterprises which fail to purchase environmental pollution
liability insurance as required may be at a disadvantage when
applying to the MEP for environmental protection approvals. The MEP
may also suspend acceptance of the enterprises' applications
for special funds for environmental protection and prevention of
heavy metal pollution. Information regarding the failure to
purchase environmental pollution liability insurance may be shared
with banks, which could in turn use the information as a basis to
rate and manage their clients.
On the other hand, the MEP may work with other authorities to
give priority to enterprises which have purchased environmental
pollution liability insurance in respect of the allocation of
special funds (for environmental protection and prevention of heavy
metal pollution) and the granting of bank loans.
There are growing concerns in China regarding environmental
issues arising along with the vast developing economy. Reports
state that the existing pilot insurance programs currently cover
over 2,000 enterprises across more than ten provinces and
municipalities and the total sum insured is approximately RMB20
billion. Through the new pilot scheme, the MEP and CIRC aim to
increase enterprises' awareness of environmental risks and
improve their management to reduce the occurrence of pollution
accidents. Since the Guiding Opinions only set out the general
guidance on the compulsory environmental pollution liability
insurance scheme, detailed rules are expected to be released later
to implement the scheme.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Contractors and principals should ensure they have appropriate insurance coverage instead of relying on indemnity clauses.
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