Support and Oversight | SESCO Group

Setting Claims Reserves * – Better Estimates Using Better Science

When an environmental claim is filed with an insurer and they determine they are in fact obligated to cover the loss, an Environmental Claims Manager (ECM), or more generically a claims adjuster, is assigned to the case.  The ECM is then responsible for estimating the amount that must be paid upon settlement of the claim, or in other words, they must set the Claim Reserve (CR).  The amount of the CR can be determined subjectively using the ECMs own judgement, or statistically using losses on similar cases.  The amount of the CR is then adjusted over time as more information is gathered regarding the claim, and that is where we, the environmental consultants, play an important role because the accuracy of the CR is based upon the investigations we conduct, and the accuracy of the CR factors into an insurers ultimate profit or loss.  So, at the end of the day, it’s in SESCO Group’s best interests to help the ECM develop better estimates, and we can do that by using better science.

The environmental investigation methods we employ today have evolved over time (and continue to do so) based on advances in science and technology as well as good old-fashioned trial and error.  I can personally attest to this based on my 30-years as an environmental consultant.  It’s amazing the changes I’ve seen.  However, it has been my experience that many regulators, insurers and environmental consultants are comfortable approaching investigations using old school thinking.  Well, a little progressive thinking now and then never hurt anyone, thus, getting uncomfortable can lead to a much more thorough investigation.

The best example to represent this evolution is the use of high resolution site characterization (HRSC) tools.  HRSC tools will provide significantly more data points than traditional investigation tools resulting in a more thorough understanding of the nature and extent of the problem.  Data are collected and available for review in real time throughout the entire vertical profile of each soil boring in both unsaturated and saturated soils.  Examples of HRSC tools include, but are not limited to, the Membrane Interface Probe (MIP), Hydraulic Profiling Tool (HPT), Ultra-Violet Optical Screening Tool (UVOST®), and Optical Image Profiler (OIP).  The UVOST® and OIP are used to detect petroleum compounds while the MIP will detect both petroleum compounds and chlorinated solvents.  When coupled with tools that measure electrical conductivity, the lithology can also be determined.  The HPT measures water injection pressure and thus produces a log of the relative formation permeability.  Using the HPT in combination with one or more of these other tools provides a comprehensive profile of the lithology, contaminant type and preferential migration pathways.  Now, to be fair, these tools provide qualitative data only, but the data will tell you where to selectively collect soil and groundwater samples and to locate and screen monitoring wells to generate the quantitative data needed to evaluate exposure risks.

At the end of the day, HRSC tools provide a significant advantage over traditional investigation tools by providing better data density and directing the collection of appropriate samples for evaluating exposure risks.  This allows for better estimates to be prepared for achieving regulatory closure and thus a better CR for the ECM.

SESCO Group, Peace of Mind, Restored.

Brent A. Graves, Chief Operating Officer, LPG

*Portions of this blog reference publicly available documents prepared by the American Insurance Association.