Environmental Concerns: Catastrophic Events and Insurance
Paleologos, Evan K.
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With ongoing reduction of engagement of public authorities in infrastructure development, private companies have to consider their responsibility in the case of catastrophic events, i.e. they must be aware of, and be able to calculate and finance, the kinds of risks that formerly were handled by the public authorities. This chapter discusses the environmental costs and insurance needed in the cases of catastrophic failure of a project due either to natural causes as the project is being developed or after it is underway in an operating mode. Anthropogenic catastrophes also can occur and these, too, are considered from the viewpoint of insurance cover needed. A third sort of catastrophe can occur if regulations are changed during development of a project or after the project is in operation. In all cases a corporation involved in such projects needs to figure out how much insurance to take out against the possibility of a catastrophe and also the premium it should pay. Using examples from the tunnel construction theater of operations, from oil exploration and field development, and from regulatory changes that can influence waste disposal procedures, this chapter shows how general procedures, developed to accommodate for such risk in operating systems in the hydrocarbon area, can be used almost as is in other fields and they also provide procedures for correctly allowing for catastrophic events to be included in assessing probable profitability and associated insurance needs at the same time. Numerical illustrations are given to illuminate the points being made as clearly as possible. The basic point made is that procedures developed for hydrocarbon risk assessment can be equally used, almost without change, in many other areas where risk is a concern.