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Why Insurance is the Most Logical Form
of Financial Assurance For
Compensatory Mitigation Projects

By David Dybdahl

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In my work as an insurance consultant for various governmental entities, I have participated in a few Proof of Financial Responsibility evaluation projects. A couple of times it was a project post-mortem to figure out why a financial assurance requirement was a failure in practice.  A common denominator in all of those projects was the financial assurance mechanism needed to be:

  • Reliable as a source of contingent future funding,
  • Totally independent from the financial fortunes of the regulated party,
  • Cost effective, and
  • Supportive of the regulated community.

The financial assurance requirements in wetland mitigation work share these primary objectives.

However, in practice regulators often work in ways that undermine achieving one or more of these objectives. Nowhere is this more evident than in the use of the insurance mechanism as proof of financial responsibility in wetland mitigation projects.  I doubt if anyone set out to create significant obstacles for the use of insurance for wetland financial assurance; it just turned out that way, usually as a result of false assumptions and lack of information on insurance custom and practice in the regulator community.