During COP28 climate talks, the former U.S. Secretary of State passionately spoke about the plight of Indian women working outdoors in construction, farming or desert salt flats and their climate change-induced “almost unbearable work conditions”. The impacts of climate change are becoming increasingly evident, affecting not only the environment but also various industries, including insurance. As extreme weather events escalate and environmental risks intensify, insurers find themselves facing a new challenge—being 'exposed' to climate lawsuits.
The climate risk landscape is changing and companies as well as their insurers are being held accountable for their investments and their liabilities. Since the initial global report, climate change cases have more than doubled, surging from 884 in 2017 to 2,180 in 2022. While several strategic climate litigations seek monetary damages, more than a few desire a fundamental change in corporate practices.
Nine-year-old Ridhima Pandey from Uttarakhand filed a climate change case in March 2017 with India's National Green Tribunal. The petition argues that India's commitments under the Paris Agreement, existing environmental laws, and climate policies mandate more significant action to mitigate climate change. It also contends that the term "environment" in the Environment (Protection) Act 1986 inherently includes the climate.
Through this article we delve into the intricate intersection of insurers and climate change, exploring the evolving legal landscape and dynamic reality of the environmental world.
Legal ‘Exposure’ Of Insurers
‘Unique’ is the word that could be used to describe the insurance industry’s position in the changing environment. Not only do they settle claims to indemnify their insureds for climate change damage, but they also feed the economy through their hefty investment portfolios. Natural disasters tearing through the land add to their troubles. According to a report released by the Centre for Science and Environment (CSE), India recorded extreme weather events on 241 of the 273 days between January 1 and September 30, 2022. That’s a disaster almost every day.
As extreme weather conditions become more frequent, insurers are grappling with the aftermath and the potential for legal action. Climate-related lawsuits are on the rise, asserting that insurers bear responsibility for covering losses associated with climate-related damages. One of the key legal challenges insurers face is the ambiguity surrounding the definition of standard industry terms like "acts of God" or "natural disasters."
Insurers Underwriting Third-Party Liability Policies
Insurers are increasingly being targeted for their role in underwriting industries that contribute to climate change. Plaintiffs argue that insurers should be held accountable for supporting and perpetuating activities that accelerate global warming, leading to severe climate-related impacts. This shift in legal strategy poses a significant threat to insurers, requiring a re-evaluation of their risk assessment methodologies. Governmental bodies are also stepping in to address the intersection of insurance and climate change. Regulatory frameworks are being developed to guide insurers in assessing and disclosing climate-related risks accurately.
India could follow in the footsteps of the European Union by introducing “green taxonomy” to attract green finance and encourage sustainability. In this era of heightened environmental awareness, the insurance industry faces not only the imperative to adapt but also the responsibility to contribute to global efforts in mitigating climate change and building a more resilient future.