Measurement of U.S. Pollution Liabilities

This paper discusses methods and data that can be used to quantify insurers’ potential liabilities arising from pollution (as specifically defined). It provides background information on the genesis of the liabilities and then discusses why traditional actuarial techniques fail in analyzing the problem and why analyses that rely on analogies to asbestos are weak. It outlines a typical analysis, including both aggregate quantification techniques and a more detailed model of the potential liabilities. It then comments on the critical issues involved in modeling reported claims and IBNR, data requirements and problems, and reinsurance issues. A list of references and a discussion of pollution claims database issues are also included. Keywords: Environmental, Superfund, CERCLA