[Coach]

Originally Posted by Tacopuck

I will definitely acknowledge there is the potential for perverse incentive structures once the human element is factored in. But I also think this would be countered by the increase pressure of lawsuits from private watchdog groups.

Who are these groups? Are they above being lobbied by both industry and insurance? Who is paying them to be watch dogs? Who sues over environmental issues? A lot of times activist law is neither prosperous nor glamorous. And it fights against the interests of highly wealthy and powerful people.

They are going to want (and now able) to sue to protect the interests they are trying to champion. Insurance companies only method of punishment would be increasing rates (which could be very substantial) if a company is acting against good practice. But at least this could be argued based on facts agreed upon in court (and not motivated by partisan politics)

The key to making sure premiums are reasonable and protections are adequate would be competition. I agree that there is the opportunity for massive insurance players to take up major market shares, but if each regulatory sector (environmental, labor, financial, ect..) is compartmentalized then smaller players could step into markets that the big companies have monopolized previously. Innovation in how to protect the sector will prevent this.

Example: Lets say a O&G company uses methane from their production to operate valves & pumps on remote wellsites. This is a case of fugitive emissions. Likely insurance companies will put limitations on how much can be released to protect a certain liability of those emissions causing a lawsuit. The big insurance companies all have the more or less the same "industry standard" for fugitive emission requirements. Seeing an opportunity a small insurance (or a big one trying to out compete the competition) offers a discount on premiums if they add Instrument air compressors to all of the sites. This way the emissions are no longer created thus the liability associated with it goes away. The savings can then be calculated and compared to the increased capital costs to install the IA compressor. This way we can incentivize good practices.

In the case a claim is made, even after these compressors are added, how is this small company that specializes in very specific type of insurance going to payout a claim? The will require the backing of larger institutions.
Who regulates if they have the financial backing to payout such a claim?

Under current government regulations, a company that decides to operate in good practice gets no benefit from spending the capital cost upfront to prevent said emissions.

There are no tax incentives or insurance premium reductions for reducing liability currently? I'm not arguing the current regulatory methods are sound (I honestly don't know much about them), but I would have to assume that there incentives to operate business responsibly. The question again is it the proper method to curb behaviour? We would probably both agree it's not.

This model would have to be studied in detail with actual measurable numbers and values before it could ever be implemented. I would guess there would definitely be an increase of "incidents" in the short term after its implementation but I believe a truly free market would eventually be able to stabilize and eventually drop incident rates and damage rates by incentivizing ethical practices. Besides getting public support to drop ALL regulations (which will not be easy / nearly impossible) this would be the biggest roadblock to getting the system to work, people would get upset that its not working immediately and scrapping the program before it can come to more of a steady state operation.

I would argue a for-profit business will never incentivize itself to spending more money on self-regulation than is the absolute bear minimum required. Including doing things that are illegal purely because cost of punishment is less than profit. It flies the face of the principle of why things are illegal. Something needs to disincentivize this "cheat until your caught. And then just pay and keep cheating." mindset. Things are illegal because they go against the public good/morals, not because they cost too much.

Thoughts.