Environmental pollution liability insurance to promote environmental risk management in chemical industrial parks

Abstract

Chemical industrial parks have led to the concentration of major hazards which can potentially result in a domino effect of accident losses. Environmental risks need to be managed in a cost-effective way for chemical industrial parks. This paper focuses on the applicability of the environmental pollution liability insurance (EPLI) in park-wide risk management. The interactions among stakeholders (i.e., chemical companies, insurance companies, and the local government) are investigated using system dynamics (SD). The SD model for EPLI considers the interactions between output value, risk level, related government policies, and insurance products. Three different insurance scenarios are developed, i.e., single company, multiple coalitions, and grand coalition. SD is used to comprehensively map the causality relationships among stakeholders and simulate trends over time. A practical case study is used to illustrate the model. Results show that the implementation of coalition EPLI helps reduce management difficulties and result in lower premiums in the long run when implemented. Furthermore, the most beneficial strategy is insuring the entire coalition of industries.