After having discussed the existing pooling mechanisms available in the offshore sector (as well as more generally) in Chapter 4, this chapter now provides an inventory of the financial market instruments currently used to cover liability following a major offshore accident and describes the extent to which various mechanisms (including the pooling discussed in Chapter 4) are currently used to cover liability risks. In fact, this chapter discusses not only the coverage of liability risks but also the coverage of property damage suffered by operators and the costs of well control because de facto many of the instruments to be discussed in this chapter are also used for these purposes. From a policy perspective, the policy maker may be more worried about the coverage of third-party liability. However, the way in which first-party (property) damage and the costs of well control are covered is quite important. In practice, the available financial and insurance instruments often cover both first-party damage, including well control, and liability. Moreover, the extent to which the instruments are used to cover items such as well control can have an important influence on the available cover for liability. Thus, the more capacity that is used for first-party damage, the less may be available for liability and vice versa.
This chapter first sketches the theoretical possibilities of various mechanisms and then illustrates their current use in the offshore sector. Finally, the advantages and disadvantages will be discussed, with a view towards providing suggestions for policy makers in choosing and designing regulatory regimes for different financial security mechanisms. The latter are, of course, important in light of Chapter 6, where the potential of the various instruments to provide enlarged coverage in the future is discussed. Whereas this chapter discusses the status quo, Chapter 6 discusses the ability of various instruments to provide wider coverage than today.
Subsequently, self-insurance will be dealt with (5.1), as will use of the capital market (5.2), ank guarantees (5.3), insurance (5.4), risk-pooling schemes (5.5), the Offshore Pollution Liability Agreement (OPOL) (5.6) and various combinations (5.7).