Third line insurance—reducing the risk to natural capital

Research output: Contribution to journalArticle

Abstract

Risk assessment of activities affecting environmental values is usually undertaken by government. If the risk is under-estimated, the costs of remediation are also borne by government, or by the environment. In this article, it is proposed that environmental values should be insured before activities that might diminish them are permitted and that the risk assessment necessary for insurance should be undertaken by insurance companies, who have an economic incentive to estimate risk correctly. Premiums set by insurance companies would transfer the costs of this risk to the proponent of such activities. The role of government would be to monitor environmental change and seek redress from proponents, and thus the insurer, should thresholds of change be breached. Insurance to cover the cost of remediation will provide a value to natural capital commensurate with that given to economic and social capital, reduce future discounting and establish the basis of the accounting needed to balance a triple bottom line. Examples of where this might be applied are the introduction of exotic or genetically modified organisms, development of greenfield sites, rangeland management, vegetation clearance and threatened species conservation. Overall the introduction of compulsory insurance of environmental values could provide a powerful incentive to improve environmental management, and focus ecological research.
Original languageEnglish
Pages (from-to)233-238
Number of pages6
JournalJournal of Environmental Management
Volume8
Issue number4
DOIs
Publication statusPublished - 2001
Externally publishedYes

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