Dirty Words: Interpreting and Using EPA Data in an Actuarial Analysis of an Insurer's Superfund-related Claim Costs

A significant amount of liability exposure for many insurers stems from pollution-related claims. Many of these pollution-related claims, in turn, stem from the implementation of the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) of 1980, also known as Superfund. This paper discusses adjustments necessary to properly use the EPA’s records of decision (RoDs) and Comprehensive Environmental Response, Compensation and Liability Information System (CERCLIS) data in actuarial analyses of Superfund costs. Background on the Superfund process and an approach to using the data in an exposure-type analysis suitable to insurers with significant potential exposure to environmental losses are also presented. The paper also discusses the difficulties typically facing an actuary in non-Superfund site cleanup cost evaluations, and concludes with some comments on environmental liability discounting considerations.