The rising tide of climate change litigation poses significant risks to the re/insurance industry, with the number, cost, and frequency of claims continuing to escalate. According to Leonora Siccardi (pictured above), global head of client solutions at Aon Reinsurance Solutions, climate change litigation is already impacting insurers' D&O and liability books.
However, she also says that it may take years to fully understand the scale of the issue, similar to the unpredictability seen with silent cyber risks.
In her report, Siccardi highlights that the increasing severity of climate-related events, growing public awareness, and an evolving legal landscape are driving this trend. Entities are being held accountable for their contributions to climate change, often seeking compensation for local responses to its effects, such as costs associated with wildfires and eroding coastlines.
Siccardi notes that this pursuit of accountability is a significant factor contributing to the rise in climate change litigation.
Additionally, there has been a noticeable increase in greenwashing accusations, particularly against corporate organizations in the plastics, food and agriculture, finance, and transport sectors. Siccardi highlights that these accusations are becoming more common and represent a growing area of concern for the industry.
Climate change is already affecting re/insurers, with economic losses from global natural disasters reaching $380 billion in 2023, of which insurers covered $118 billion. The increased frequency of these events is the main driver of insured loss accumulation. Climate change litigation could drive even more losses, Siccardi warns.
The climate change litigation database maintained by the Sabin Center for Climate Change shows over 2,300 climate change-related lawsuits. In the past decade, greenwashing cases have resulted in billions of euros in fines, with the highest payout being €31.1 billion against Volkswagen in 2020. Praedicat estimates that smaller single climate litigation scenarios could reach around $25 billion each.
Liability issues may arise from public disclosure of ESG intentions, particularly when disclosures are required by law but are not published or if published, miss required aspects such as net-zero targets. Companies may rely on their existing insurance arrangements—especially commercial general liability, public and products liability, and directors’ and officers’ liability insurance—to cover liabilities that may arise.
However, this is not guaranteed, Siccardi said. Legacy policies, as well as current ones, will likely be impacted by these claims. This is similar to the Big Tobacco settlement in the 1990s, where there is potential for "silent climate" cover in some policies that were not explicitly designed to respond to such claims.
Class actions are opening the door to high-value, complex claims that are wider in scope and more expensive to defend, generating more press coverage and carrying a greater risk of reputational damage.
There is also potential for adverse judgments against companies defending climate change claims, as well as the cost of defending these claims. This is particularly poignant in litigious jurisdictions where courts look favorably upon claimants, according to Siccardi.
With climate change driving the frequency and severity of natural catastrophes, and the rise in climate change litigation brought against corporations for greenwashing, insurers need a strong client service and claims management team to deliver stability and sustainable success.
Praedicat has notably developed a 'CoMeta / Climate Casualty Toolkit,' which, through 13 scenarios, helps clients identify and quantify how litigation events could aggregate in their casualty books.
Siccardi advises that insurers and reinsurers should consider their exposure to these types of suits sooner rather than later. The key is to be aware of potential claims, understand the exposures, and have practices in place to manage claims effectively.
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