Clyde & Co Resilience Climate Change Risk Liability Report


Insurance issues and solutions: a new risk market

Insurers are no strangers to climate change issues, and have had to price in the risks that climate change brings for several decades. However, just as risks appear to be ramping up, new opportunities are also emerging for the industry to develop new insurance solutions, and even to create a new risk market in this space. When it comes to reducing exposures, some insurers may feel it necessary to increase reserves to cover the probability of rising defence claims costs. Of course, reviewing policy wordings and exclusions for climate change related exposures is also vital: understanding not only the risks but also how the policy will respond. “For insurers, it’s very much a question of managing historic as well as future exposures,” says Neil Beresford. For instance, (re)insurers may face claims under historic towers of liability insurance. They will need to understand the coverage offered, the relevance of pollution exclusions and the nuances of how the policies might respond. When writing policies today, not just for oil and gasmajors but for any company whose activities relate to fossil fuels, insurers will need to take

into account the risks arising from those companies’ past and future liabilities. In light of this, there are a number of questions of principle that insurers may wish to consider early on, including: – – Has an occurrence already taken place? Many of the historic programmes will be written on an “occurrence” basis; therefore insurers will only be liable for damage which occurs during the period on risk – – What constitutes a triggering event? For example, can damage to the atmosphere trigger coverage? – – Are exclusions applicable? Most general liability policies will contain pollution exclusions. How do those operate in a climate change scenario? – – Who is committing the damage? It may be the customers of the insured, not the insured itself, who have caused the damage – – What is the governing law? The answer to any of the above questions may differ according to the governing law of the policy

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