CCS legislation is currently comprised of an overlapping network of international agreements and regional policies which form a strong basis for environmental protection for potential leakage of CO2 from underground storage sites. However, these legislative instruments form an uncoordinated legal basis for CCS with overly stringent liability provisions posing a significant barrier to stakeholder investment, technology development and future roll-out of commercial scale CCS projects. A number of insurance companies have recently developed different types of insurance mechanisms for covering CO2 storage facilities. Whilst these types of insurance policies are beneficial in encouraging the CCS industry in general, there are also drawbacks. Mostly, they only cover the CO2 capture facility during the operational phase of power plants or they solely cover the facility for 10 to 30 years after injection has been completed and storage sites have been sealed off. Furthermore, there is no standard regime for a comprehensive insurance mechanism for commercial scale CO2 storage facilities due to lack of enough information in regards to the long-term liability of potential CO2 leakage, type of risks involved in the technology of geological storage of CO2 and the likelihood of occurrence of these perceived. This research has identified the main risks associated with CO2 storage under geological formations and has developed a novel mechanism that enables the insurance industry to assess the risks of CO2 storage more effectively and therefore adjust their premium rates more in favour of CCS projects. In addition, this will also be beneficial for regulators in enabling them to regulate more effectively in order to incentivise stakeholder participation and investment in the CCS technology. The said mechanism has been developed using a range of systems engineering optimization techniques in order to assess the significance and criticality of the risks of CO2 leakage through the caprock and their likelihood of occurrence.