Ceres reports that insurers want to be part of the climate change solution
In April 2009, Ceres published a report entitled “From Risk to Opportunity, Insurer Responses to Climate Change.” The report contains responses and significant information from over 12 insurance companies, as well as several brokers, insurance consultants, insurance associations regarding the climate initiatives being undertaken by the industry, including coverage for green buildings, renewable energy, carbon risk management, and officers’ liability insurance to tackle climate change and rising weather-related losses in the US. The report speaks to the many insurer activities identified in our previous blog post regarding insurance industry climate change strategy and its implications for corporate policy holders, as well as the more recent March 17, 2009 National Association of Insurance Commissioners (NAIC) climate risk disclosure requirement for insurance companies. The insurance industry’s response aims to address more than $200 billion in estimated losses to the global economy attributed to climate change, but critics say the industry’s response is too little, too late.
The Ceres report identifies 643 specific insurance industry climate activities in the areas of:
- Developing “innovative” insurance products;
- Disclosing carbon risk;
- Aligning terms and conditions with risk reducing behavior and promoting loss prevention;
- Promoting understanding and participation in Climate change and public policy;
- Offering carbon risk management and offsets; and
- Investing in and financing climate change solutions and customer improvements.
What does the Ceres Report say about Insurers and Policy Holder Litigation?
Interestingly enough the report states that “liability insurers might willingly assume the responsibility for climate-related litigation costs borne by their policyholders (p.1).” The report goes on to state that losses arising from the causes/impacts of climate change, as well as the emerging responses, will pierce liability lines. Potential triggers for insurer responsibility include:
- Abrupt impacts of extreme events linked to climate change;
- Gradual impacts such as increased mold losses from warmer and wetter climates and flooding (Lavoie 2006);
- Secondary consequences of climate-linked events (e.g. waste spills);
- Failure to adapt quickly or adequately to climate change impacts;
- Demands for compensation for prudent adaption costs;
- Political risks;
- Poor corporate governance and failure to fulfill fiduciary duties in light of climate change risks and opportunities;
- Professional liability associated with implementation of new technologies;
- Contract performance in carbon-offset or energy production/saving projects, and carbon credit nondelivery;
- False advertising (greenwashing);
- Disinformation/fraud;
- Inadequate fiduciary responsibility (investment choices)
- Worsening roadway risks affecting vehicle liability losses.
The report acknowledges that insurers in the past have “assumed certain risks for which they did not collect adequate underwriting information or, premiums, or have adequate surplus.” The report recommends that insurers involving climate-related risks will “need to be attentive to changing standards of care, as new data, methodologies, and technologies emerge.
Insurers facing climate change coverage litigation, creating climate change policies
While insurers are bracing for potentially significant climate change coverage litigation (see, e.g., Kivalina) under past and current policies, insurers are simultaneously beginning to develop insurance products for risks associated with technologies designed to address climate change issues.
Some of the insurance industry effort will likely be geared towards shaping public policy on these issues through the sponsorship of studies, such as the Catlin Group’s $6 million Artic Survey. Other insurers, such as Zurich, have created “climate initiatives,” which include internal “climate offices” and “climate change advisory councils.”
While insurance industry efforts to fund research and studies are laudable, even if ultimately designed to create markets for new insurance products, policyholders should be wary that insurers do not use those insurance industry-funded efforts in a self-serving way to develop “evidence” to defeat coverage claims by policyholders for these risks under past and current policies.
