Environmental liability and insurance - Paul Dumitru

Environmental risk is decribed in this article from a risk management perspective as well as from the identification, evaluation and insurance risk transfer point of view.

 This risk is special as it has unique characteristics compared with any other third party liabiliy risk because it is difficult to be identified and it can cause catastrophic losses. Althought at a first glance this risk seems to be specific to some industries, the reality is that it does not spare any economic activity. From a risk treatment point of view, companies have to identify the potential sources of pollution, the population that could be affected as well as the routes that could lead to the target population.

Whilst enviromental liability leads to catastrophic losses, its financial consequences transfer through insurance is often ignored most of the times by the companies. While on the international market the insurance products offer is quite diversified, in Romania the offer is narrow probably due to the reduced demand. The enviromental insurance liability market in Europe is estimated at about Euro 250-300 million, the international insurers having a capacity of up to US$ 200 million for any one insurer.

 The demand for environmental insurance liability in Romania could be stimulated by imposing ”financial warrantees” for environmental damages, using the models from other countries from the Western or Eastern Europe. From the growth of the insurance market would benefit not only the Romanian insurers, but also companies as they would be better protected, and the economy, as the premium generated would be invested by the insurers in various financial instruments, thus returning the money back to the economy.