Hazardous Waste:

The Cost and Availability of Pollution Insurance

PEMD-89-6: Published: Oct 28, 1988. Publicly Released: Dec 21, 1988.

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Pursuant to a congressional request, GAO reviewed the availability of pollution liability insurance for owners and operators of hazardous waste facilities, specifically: (1) changes in financial responsibility mechanisms since 1982; (2) how the number of insurance companies offering pollution liability insurance had changed since 1982; and (3) how the insurance industry determines risk and sets rates for pollution liability insurance and how sound those methods are.

GAO found that: (1) in 1982, the Environmental Protection Agency (EPA) required facility owners and operators to have liability coverage through a liability insurance policy, a financial test, or a combination of the two; (2) from 1982 to 1984, about two-thirds of hazardous waste land disposal facilities used insurance to fulfill the financial responsibility requirements, but in 1986, most used the financial test option; and (3) in September 1988, EPA expanded the financial responsibility mechanisms by accepting letters of credit, surety bonds, trust funds, and guarantees by nonparent firms. GAO also found that: (1) the number of insurers providing sudden and accidental coverage rose from 35 in 1982 to 42 in 1984 and then declined to 31 in 1986; (2) the number of insurers providing gradual pollution coverage rose from 7 in 1982 to 19 in 1984 and then declined to 12 in 1986; (3) the number of policies written and the total pollution liability coverage has decreased dramatically since 1984; and (4) some insurance policies offered limited coverage or provided only nominal protection. GAO could not find data adequate to develop an actuarial basis for judging the soundness of the industry's ratesetting for pollution insurance, since EPA did not require insurers to file loss information separately for pollution insurance.

Matter for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: The requesting committee has considered this recommendation.

    Matter: Congress may wish to consider authorizing EPA to collect the appropriate information to assess the reasonableness of the costs of insurance to meet EPA liability coverage requirements. Such information would include premiums and additional costs to the insured operator, underwriting expenses for the insurer, and any limitations to the financial protection afforded under the insurance contract.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: EPA is monitoring the effects of more flexible liability regulations.

    Recommendation: EPA has recently expanded the number of financial mechanisms that hazardous waste facility owners and operators may use to demonstrate financial responsibility. EPA should carefully monitor the effects of this additional flexibility on the number and size of operations using noninsurance alternatives to determine if it does not have the intended effect of reducing the problem created by the constrained insurance market.

    Agency Affected: Environmental Protection Agency

 

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