How climate change will impact insurers in 2021
Regulators are expected to move the industry to create new insurance products to mitigate the risks from climate change, while also increasing scrutiny.
Climate change will create a forked path for insurers in 2021.
On one side, U.S. regulators are expected to increase scrutiny of insurers’ disclosures regarding, and efforts to manage, the potential risk from climate change. Down the other route, regulators are likely to increasingly facilitate the development of innovative products that work to mitigate exposure to climate change risks for prospective insureds, according to Clyde & Co. LLP.
Challenges from climate change
Regarding the first point, potential climate change risks range from losses caused by climate-related natural disasters to concerns about the impact insurers’ investments might feel in certain asset classes, such as fossil fuels as the shift to alternative energy proceeds in the coming years, Clyde & Co. reported.
As a result, insurance regulators are anticipated to take actions designed to encourage insurers’ climate change risk management.
Regulators are also expected to increase demands on the industry to find solutions for people already feeling the impact of climate change. Clyde & Co. gives the California Insurance Department’s mandatory one-year moratorium on insurers’ non-renewing or canceling residential property insurance policies for people living near a declared wildfire disaster.
Climate change could push innovation
As noted, regulators are expected to move the industry to create new insurance products to mitigate the risk of climate change in 2021 as well.
Clyde & Co. explained this could play out in a fashion similar to the memorandum of understanding the New York Department of Financial Services struck with the state’s Energy Research and Development Authority, which finds the two agencies working together on the development of new insurance and financial products that have the “potential to de-risk and accelerate the development and deployment of key low-carbon technologies,” wrote Vikram Sidhu and Jared Wilner, Clyde & Co. partner and senior counsel, respectively.
Climate litigation heats up
The coming year is also expected to see a sharp rise in climate change lawsuits against companies and their executives as cases begin to impact more individuals across a wider range of sectors, according to Clyde & Co. Cities and states in the U.S. are filing more suits to seek remediation from businesses contributing to the consequences of climate change, such as rising sea levels and increasing flood risks.
“Climate change-related claims against corporations can take a variety of forms,” Nigel Brook, a Clyde & Co. partner, told PropertyCasualty360.com. “If a claimant seeks damages for the defendant’s contribution to climate change then the claimant will typically have to prove, among other things, that it has standing to sue; that the corporation owed it a duty of care, and that the harm suffered by the claimant was foreseeable; and that the harm was in fact caused, or made more likely, by climate change driven by man-made emissions.”
He explained a claim against an insured might be related to climate change without being explicitly about it; for example, claims against architects and engineers that failed to take changing rain patterns into account when designing a building.
When it comes to this type of litigation, causation is the major issue for insureds, according to Emma Ager, a partner in Clyde & Co.’s London insurance and reinsurance group.
“Each case and each class of insurance presents different challenges. Climate change claims are being seen in a wide variety of insurance including D&O, casualty and general liability policies,” Ager relayed to PC360.com. “Questions remain as to how insureds will prove the connection between the cause or actual event and the loss, and how it is covered under a specific policy. We anticipate that in 2021, we’ll see an acceleration in the pace and scale of climate change-related claims and losses and consequent coverage disputes.”
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