In this paper, a leading international insurance broker summarizes: - present attitudes of insurers to underground storage risks - what is needed to overcome their reticence _ experience gained from the parallel case of Environmental Impairment Liability (ElL) - procedures developed for "auditing" individual ElL risks - research past and present to develop data and guidelines needed for structuring a new insurance facility specially tailored for handling all risks associated with underground storage
Rockstore 80 is, in itself, telling evidence of the increasing interest in the use of subsurface space for storage purposes. Even for non-strategic commodities, storage underground often offers intrinsic advantages which balance or outweigh the higher cost involved in the construction of new caverns or in the adaptation of existing underground space to new use. Moreover, advanced methods of subsoil exploration and excavation progressively tend to reduce the cost differential and to lessen the risk of cost overruns or of abandonment. Despite their growing popularity, 'underground storage installations are still the exception rather than the rule. The risks associated with their construction and operations are, therefore, much less well-known than for topside installations serving the same purpose. Some of these risks are obviously greater - especially during construction - whilst others are obviously much reduced as, for example, the risk of damage and of resulting business interruption due to external impact.
Moreover, as long as the number of these subsurface installations is small by comparison with their topside equivalents, the actuarial data available in respect of their specific loss record - i.e. the frequency, causes and financial consequences of any mishaps occurring during their construction or operation _ remains necessarily insufficient to provide an acceptably sound base for forecasting probable loss ratios for any new ventures of this type. For these reasons, most insurers still tend to take a rather negative view of subsurface storage installations. Many will simply decline to become involved with them, whilst others will adopt an over-cautious approach, restricting scope of Cover and loading premiums. In its early stage, the methodology of underground storage as an alternative to topside installations was developed by a few pioneers, who were willing to treat analytical deductions as an acceptable substitute for knowledge based on experience. Much the same applies to insurance: when cover is sought for unfamiliar risks, only a few pioneering underwriters will be prepared to accept the challenge. It is usually only after a certain period that the Insurance Industry as a whole will respond constructively to new developments. This time-lag rarely slows technological advance as such; those who conceive or order works or products of advanced design are usually prepared to accept a higher ratio of risk - or a higher premium to transfer these risks to insurers - rather than to forego the expected benefits which would result from a successful outcome of their venture. At the same time, insurer's reticence to back prototype risks with their shareholder's money can also be beneficial to the community as a whole when it acts or could act as a brake on premature deployment of vast sums in ill-conceived and, therefore, ill-fated new developments (e.g. the 1976 swine flu immunization programme in the USA).