Can Environmental Insurance Succeed Where Others Have Failed Essay

Can Environmental Insurance Succeed Where Others Have Failed - Essay Example The researcher states that there are many protective measures put in place by firms in order to reduce environmental pollution. It ranges from environmental policies, health policies as well as the safety risk policies. However, these protective measures may not be socially efficient. In such cases, these firms have to be liable to the negative externalities developed due to their actions. Such externalities include loss of well-being of people exposed to pollution or those individuals who are not willing to use unhygienic recourses. In such situations, environmental may levy a post-damage fine, directly proportional to the extent of the external damage violated. For smaller firms, this fine may exceed their limited assets, therefore, making the firm declare they are bankrupt and avoid paying the fine altogether. Environmental agencies, therefore, came up with a pre-damage risk management process. In this process, firms will pay smaller fines frequently for not implementing the oblig atory environmental practices. Examples of such management process include Project Safety Management (PSM) programs, Risk Management Program (RMP), U.S. Environmental Protection Agency (EPA) and also Occupational Safety and Health Administration (OSHA). Since post damage fines are often limited by bankruptcy and, on the other hand, pre-damage process mandates are constrained by monitoring. And, therefore, the best alternative will be to buy the environmental insurance policy. The paper, therefore, researches on mandatory insurance for Underground Storage Tanks (USTs) in order to come up with answers if environmental insurance policy succeeds where the traditional policies failed. Pre-damage fines could have been the best alternative to address the issue of bankruptcy, but the implementation is constrained by regulatory agencies’ narrow monitoring capabilities. Environmental Protection Agency has limited auditors to do facility inspection in order to ascertain whether all firm s have effectively put into practice all the risk management practices.