The Design of an Estimation Model for Environmental Liability Insurance (ELIS)

Pricing for an insurance policy can be described as the process of calculation of expected compensation to be paid to property losers as well as associated costs of potential risks. Loss forecast is accurate if the risks will be identified appropriately in order to calculate the frequency and expected severity of losses.This is particularly important about environmental risks since most of them appear in the long run. Environmental risk assessment model is both able to estimate the environmental liability premium for environmental pollution and degradation, and it can play a valuable role in promoting this industry. ELIS (Environmental Liability Insurance) software calculates the environmental risk number in industry sector and insurance charges for events resulting in environmental pollution. This paper deals with designing the model and outputs of the software. The user selects the type of project, and input the descriptive information concerning the occurrence of possible environmental pollutions. The model calculates risk numbers, the type of accidents, classification and weighting of severity of environmental impacts, risk priority numbers (RPN); pollutant volume and environmental sensitivity, environmental cost of contaminates, and finally Net premium for Possible Accidents. The case study indicated the applicability of then model. For this case an oil refinery in Iran was selected with a capacity of 85,000.barrels of refined oil per day. The calculated premium on the basis of losses arising from air pollution was evaluated to be equivalent to 70,000$ US. The same procedure can be applied to evaluate the amount of premium for soil and water pollution.