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Environmental Risks and Insurance

A Comparative Analysis of the Role of Insurance in the Management of Environment-Related Risks

image of Environmental Risks and Insurance

From the increasing incidence of environmental pollution and soil contamination, to recurring natural disasters, the risks posed by the constant interaction between human activities and the environment are diverse, manifold and often catastrophic in their consequences. Therefore, the elaboration of effective risk-management plans, aimed at formulating viable response strategies, requires the contribution of all the economic actors involved: private parties, financial institutions, governments and international organizations.

This report focuses on the role of insurance and reinsurance companies in the management of environmental risks - environmental pollution risk and natural catastrophe risk in particular.

It discusses the issue of insurability of such risks, analyses the increasing risk of liability for environmental pollution and the underlying trends in the development of environmental liability regimes in OECD countries. It also presents an overview of the various environmental pollution insurance products and techniques developed in response to legal and factual evolutions. In addition, it describes the special features of natural catastrophe risks, the role of traditional insurance markets in the coverage of such perils, and alternative options of coverage, from governmental disaster schemes to new financial market instruments.

English Spanish, French

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Environmental Pollution Risk and Insurance

This chapter focuses on the management of risks related to environmental pollution. Insurability of such risks is tightly connected with the underlying legal and regulatory framework. The author analyses different legal approaches to environmental risks and liability, sketches out the experiences of various OECD countries in this field, and describes recent EU developments. He also examines the factual and legal uncertainty stemming out of the complex and potentially long-tail consequences of environmental pollution. The chapter then provides an overview of the new products and techniques designed by the insurance industry to respond to induced insurability problems, and underlines the various potential roles to be played by insurers in the management of environmental pollution risks. Finally, the author raises the issue of the slow development of the insurance market for environmental pollution risks and appraises different solutions to overcome this problem, among which a compulsory insurance coverage or the development of alternative financial guarantees...

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