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Insurers face challenges from rising climate litigation 

The rise of climate litigation carries implications for Australian insurers, law firm Clyde & Co says after a United Nations (UN) global report has Australia as the jurisdiction with the highest number of cases outside of the US and the European Union (EU). 

Partner Jacques Jacobs says in the face of evolving environmental, social, and governance (ESG) considerations, the insurance sector will need to adapt and recalibrate its risk assessment models. 

“The surge in climate-conscious litigation and regulatory shifts places a spotlight on the role of insurers in safeguarding against potential liabilities stemming from the actions of financial institution insureds,” Mr Jacobs said. 

“Insurers operating in the Australian market will need to assess their current underwriting strategies, refining their policy terms, and embracing a more comprehensive risk management approach.” 

He says in practice some variance in pricing can be expected as insurers attempt to grapple with accurately quantifying climate-related risks and incorporating them into pricing models. 

“Underwriting criteria will need to be assessed to encompass a broader spectrum of factors, from investment strategies and climate adaptation plans to the overall environmental impact of insured entities. 

“We expect that as the claims begin to trigger liability policies, insurers will look to equip their insureds with sustainable business practices, risk mitigation, and robust climate resilience as part of their insurance offerings.” 

The UN Global Climate Litigation Report, released last month, says people are increasingly turning to the courts to combat the climate crisis and that the legal grounds for these cases are also widening. 

“Both the United Nations Human Rights Council and the United Nations General Assembly have now recognised the right to a clean, healthy and sustainable environment,” the report says. 

“Climate litigation has set precedents for climate action all over the globe, going beyond the jurisdictions in which they were brought and empowering and driving similar action in other countries.” 

Australia topped the list of jurisdictions outside of the US and the EU with the most cumulative cases, at 127. The UK placed second (79) followed by Germany (38) and Canada (34) as at the end of last year. 

According to Clyde & Co the transition to net zero over the next few years is likely to lead to many disputes, which will ultimately be the subject of insurance claims. 

“As we navigate the net zero transition, it is unsurprising that we are starting to see a surge in climate change-related disputes,” Mr Jacobs said. 

“The long tail of this will ultimately result an increase in insurance claims as businesses attempt to mitigate their exposure.” 

Click here for the UN report.