Estimating U.S. Environmental Pollution Liabilities by Simulation

The application of computer simulation to the estimation of environmental pollution costs for inactive hazardous waste sites is presented. The various modules of the pollution costs simulation model (PCSM) are described, with the flow of costs traced from remedial action at EPA and state-administered sites through to insureds in the form of potentially responsible parties (PRPs), and finally to the application of coverage defenses. Methods are presented for using precision (credibility) estimates for state averages, and for projecting costs for an insurance portfolio based on sampling proportions. Countrywide results are presented, including the characterization of variability and comparisons to published insurance industry estimates of ultimate loss and expenses.