Valuing risk

Environmental Risks and Insurance: A Comparative Analysis of the Role of Insurance in the Management of Environment-Related Risks
Insuring the environment is a high-risk business; not only is it a gamble on whether and how one’s client will pollute, it also means having to pay increasingly high costs for cleaning up oil spills, detoxifying chemical leaks and decontaminating groundwater. Can insurance companies continue to afford such coverage?
Yes, says Environmental Risks and Insurance, but it will take coordination between the insurance industry and government policymakers.Unsurprisingly, many firms would rather not have to pay for pollution insurance. One of the difficulties in marketing environmental liability packages, according to Environmental Risks and Insurance, is that the risk of gradual pollution is too often a low-probability, high-consequences risk. Generally, such risks are felt to be easily under-estimated or even ignored. In a catch-22 for those marketing such insurance, once a potential client has been declared insurable, the policy may be turned down on the logic that if the company is insurable, it must be low risk and the insurance an unnecessary expense.It goes both ways, of course. Where purchase of pollution coverage is a condition to operate, the insurer may decide a firm is too high-risk and refuse coverage, turning insurance companies into de facto environmental policemen.Not necessarily a bad thing, as it enforces the polluter-pays principle espoused by the OECD. Furthermore, Environmental Risks and Insurance suggests that other financial instruments could be used to secure financial coverage for environmental damage, such as a bank-issued guarantee, an advance deposit in an environmental account or even with personal or collateral security. Environmental liability regimes in OECD countries seek to both assure the availability of such insurance cover and compensate for damages caused by pollution. Until recently, according to Environmental Risks and Insurance, much legislation focused on simple negligence on the part of the polluter, which was often difficult to prove and put the task of suing for compensation on the injured parties. New environmental legislation imposes the standard of strict liability, which shifts that responsibility back to the owners and operators of environmentally dangerous activities. In the case of oil spills, this means that the owner of the tanker that pollutes is liable regardless of whether or not he was actually at fault. The claimants can thereby be compensated promptly, without the need for lengthy and costly litigation.© OECD Observer No. 240/241, December 2003

Economic data

GDP growth: +0.6% Q1 2019 year-on-year
Consumer price inflation: 2.3% May 2019 annual
Trade: +0.4% exp, -1.2% imp, Q1 2019
Unemployment: 5.2% July 2019
Last update: 8 July 2019

OECD Observer Newsletter

Stay up-to-date with the latest news from the OECD by signing up for our e-newsletter :

Twitter feed

Subscribe now

<b>Subscribe now!</b>

To order your own paper editions,email

Online edition
Previous editions

Don't miss

  • MCM logo
  • The following communiqué and Chair’s statement were issued at the close of the OECD Council Meeting at Ministerial level, this year presided by the Slovak Republic.
  • Food production will suffer some of the most immediate and brutal effects of climate change, with some regions of the world suffering far more than others. Only through unhindered global trade can we ensure that high-quality, nutritious food reaches those who need it most, Angel Gurría, Secretary-General of the OECD, and José Graziano da Silva, Director-General of the United Nations Food and Agriculture Organization, write in their latest Project Syndicate article. Read the article here.
  • Globalisation will continue and get stronger, and how to harness it is the great challenge, says OECD Secretary-General Gurría on Bloomberg TV. Watch the interview here.
  • OECD Secretary-General Angel Gurría with UN Secretary-General António Guterres at the 73rd Session of the UN General Assembly, in New York City.
  • The new OECD Observer Crossword, with Myles Mellor. Try it online!
  • Listen to the "Robots are coming for our jobs" episode of The Guardian's "Chips with Everything podcast", in which The Guardian’s economics editor, Larry Elliott, and Jeremy Wyatt, a professor of robotics and artificial intelligence at the University of Birmingham, and Jordan Erica Webber, freelance journalist, discuss the findings of the new OECD report "Automation, skills use and training". Listen here.
  • Do we really know the difference between right and wrong? Alison Taylor of BSR and Susan Hawley of Corruption Watch tell us why it matters to play by the rules. Watch the recording of our Facebook live interview here.
  • Has public decision-making been hijacked by a privileged few? Watch the recording of our Facebook live interview with Stav Shaffir, MK (Zionist Union) Chair of the Knesset Committee on Transparency here.
  • Can a nudge help us make more ethical decisions? Watch the recording of our Facebook live interview with Saugatto Datta, managing director at ideas42 here.
  • The fight against tax evasion is gaining further momentum as Barbados, Côte d’Ivoire, Jamaica, Malaysia, Panama and Tunisia signed the BEPS Multilateral Convention on 24 January, bringing the total number of signatories to 78. The Convention strengthens existing tax treaties and reduces opportunities for tax avoidance by multinational enterprises.
  • Globalisation’s many benefits have been unequally shared, and public policy has struggled to keep up with a rapidly-shifting world. The OECD is working alongside governments and international organisations to help improve and harness the gains while tackling the root causes of inequality, and ensuring a level playing field globally. Please watch.
  • Checking out the job situation with the OECD scoreboard of labour market performances: do you want to know how your country compares with neighbours and competitors on income levels or employment?
  • Trade is an important point of focus in today’s international economy. This video presents facts and statistics from OECD’s most recent publications on this topic.
  • The OECD Gender Initiative examines existing barriers to gender equality in education, employment, and entrepreneurship. The gender portal monitors the progress made by governments to promote gender equality in both OECD and non-OECD countries and provides good practices based on analytical tools and reliable data.
  • Interested in a career in Paris at the OECD? The OECD is a major international organisation, with a mission to build better policies for better lives. With our hub based in one of the world's global cities and offices across continents, find out more at .
  • Visit the OECD Gender Data Portal. Selected indicators shedding light on gender inequalities in education, employment and entrepreneurship.

Most Popular Articles

OECD Insights Blog

NOTE: All signed articles in the OECD Observer express the opinions of the authors
and do not necessarily represent the official views of OECD member countries.

All rights reserved. OECD 2019