Insurance in International Pollution Regimes: Burden Sharing Mechanisms

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Insurance in International Pollution Regimes
Burden Sharing Mechanisms
M.J.Mace Climate Change and Energy Programme,
FIELD FIELD/UNDP SIDS Workshop on Insurance and
Extreme Weather Events Milan, Italy November 28,
2003
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AOSIS International Insurance Pool

• Collective loss sharing - fund to compensate
  victims of sea-level rise
• Mandatory contributions from industrialized
  countries based on GNP and emissions
• Trigger for claims
• rate and absolute level of global mean SLR
  reaches previously agreed figures
• relative mean SLR of insured area in vulnerable
  country reaches agreed level
• Trigger levels and insured values subject to
  negotiation with Authority
• Claims for retreat and accommodation
• measures

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Oil Spill and Nuclear Regimes
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Oil Spill Regime CLC and IOPC Conventions
2nd Supplemental Layer up to US203 million
c
1st Supplemental layer of cover up to
US175 million
nn
c
Mandatory insurance LL based on capacity of oil
tanker Coverage/strict liability up to US82
million
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OIL SPILL REGIME - WHO BEARS POLLUTION COSTS??
PRIVATE SECTOR!
1,000 million Euro
EU Beneficiaries (additional levy imposed on
entities w/i EU receiving oil - contingent fund)
EU Fund
Beneficiaries of shipments (Companies receiving
oil) (Protocol is 2003 increase in ceiling for
claims)
203 million
Fund Protocol
Beneficiaries of shipments (per ton levy on
Companies receiving oil) (Consumption/Demand -
CO2 ANALOGY HEAVY INDUSTRY? UTILITY
COMPANIES? )
175 million
IOPC Fund
(Supplemental)
82 million
Tanker owners, shipping interests (primary
financial interest from shipment control risk
reduction) (Production/Supply - CO2 ANALOGY OIL
PRODUCERS?)
Convention on Civil Liability
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Oil Spill Regime

• Two-tier system (CLC and Fund Conventions),
  supplemented by EUs Cope Fund as a third layer
• Covers 91 of worlds shipping oil tonnage
• Governments transfer risk
• legislation to implement Convention imposes per
  ton levy on oil receivers of a certain size
• shifts responsibility for spill clean up from
  government and private citizens to polluting
  class
• addresses situation where no individual entity is
  clearly responsible for a spill
• recognizes complexity of oil shipping industry
  (if vessel flagged to one country, owner of old
  vessel from another, crew causing accident from
  another - who is liable? Where would claims be
  brought?)

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Oil Spill Regime

• Doesnt matter who is liable so long as
  recourse is provided to those injured, through a
  fund/pool constituted from those contributing to
  the danger
• Private sector trades cost of obtaining mandatory
  insurance coverage, for a known limit of
  liability
• With a known limit of liability, insurance can be
  obtained, because insurance industry can assess
  risk exposure and price coverage
• Public and government exchange potential claim
  for recovery of clean up costs against a
  potentially responsible party, which may involve
  proof problems, or empty pocket problems, for the
  ability to recover clean up costs from fund
  constituted under the IOPC.

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Nuclear Regime governments retain substantial
responsibility
2nd Supplemental Layer up to total of 300 million
SDRs, (50 GNP, 50 States thermal power ratio
c
1st Supplemental layer of cover up to a total of
175 million SDR state pays if operator cannot
nn
c
Minimum operator liability, of 5million SDR to
be guaranteed by financial security -States may
allow higher
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Other Convention Processes

• Basel Conventions Protocol-
• transboundary transport of hazardous substances
• Handlers required to obtain insurance, bonds or
  other financial guarantees with exposure tied to
  amount shipped
• CRTD -
• Carriers of dangerous goods
• Required to obtain insurance or financial
  security to cover damage during transport, amount
  tied to type of carrier, type of injury
  potentially suffered.

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• Protocol on Civil Liability and Compensation for
  Damage Caused by Transboundary Effects of
  Industrial Accidents
• Financial security required at a fixed ratio
  relative to liability limits
• HNS Convention
• Similar to CLC and Fund Convention for oil spill
  regime
• All use insurance mechanisms to manage risk and
  guarantee some payment to victims