Managing Environmental Risk Through Insurance

Under the radar: mitigating enigmatic ecological impacts

“…Section 112(r) of the 1990 US Clean Air Act Amendments provides one example: it offers an opportunity to utilise insurance coupled with third-party inspections to encourage firms to reduce their risks of pollution events from accidents and disasters [67]. At present, impacts that are covered by insurance firms are restricted to human loss of life and injury, and environmental and social impacts remain negative externalities.…”

“…Insurance is an effective risk management mechanism because of its capacity to segregate and spread risk effectively, allow for the monitoring and control of behaviour, and encourage loss reduction measures [67]. Importantly, insurance schemes have a lower regulatory burden than most other forms of enforcement.…”

“…Mandatory environmental insurance schemes offer one way to enact this shift and could ensure that dedicated funds are available when further impacts emerge. Such schemes can help ensure that development decisions intrinsically take account of the risks of unaccounted impacts occurring, with the onus on the developer to better account for and prevent ecological impacts to merit lower premiums [67].…”

Political Action by the Canadian Insurance Industry on Climate Change

“…The result is that the industry has taken on some of the environmental protection function of the state, by inducing brown-industry clients to improve their environmental performance. Recently, some analysts have argued that such a state of affairs -essentially a shifting of one part of the environmental governance function from public to private hands -is desirable because it is inherently more efficient [Freeman and Kunreuther, 1997]. Some of those within the industry are less certain, arguing that it 'would place the insurance industry in a "quasipoliceman" role.…”

Risk Governance

“…The majority of proposals deal with common elements such as risk identifi cation, risk analysis, and risk treatment. Freeman and Kunreuther ( 1994 ) likewise give attention to the transfer of risk through legal liability and the use of insurance to spread risk, reduce variance, segregate risks, encourage loss reduction measures, and monitor and control risk. Second, risk analysis is a determination of which hazards should be given the highest priority (in terms of attention and resources).…”