10.1 - Climate Change and Liability Insurance Flashcards
Explain climate change and its impact on the insurance industry
The Scope of the Problem
-since 1998, the average temp every year has been warmer than the average for the twentieth century, for the entire planet
-figuring out the average temp of the planet requires a great deal of scientific data
-these data come from several sources
> air temp is recorded by weather balloons and at weather stations around the world
> ocean temps are measured using thousands of buoys and ships
> orbiting satellites continually monitor the world’s ocean and air temps
-independent international research organization collect and analyze the data to determine the Earth’s overall temp
-global temps have been rising for more than 100 yrs and rising most in the last 50
-the years since 2001 have seen 21 of the 22 warmest years on record
-the increase in global temps has been dramatic compared with the norm of the last 10,000 years
-and whereas natural causes have given rise to previous climate changes, human activity has brought about the current change in climate
Origins and Development - Natural causes
-the Earth’s climate is generally affected by natural, external factors - for example, volcanic activity and the Sun’s output - that mainly change the amount of incoming energy (A third factor, change in the Earth’s orbit around the sun, occurs too slowly to have contributed to the current change in climate)
-but volcanic eruptions are episodic and have relatively short-term effects on climate
-changes in the sun’s output have contributed to climate trends over the past century, but since the Industrial Revolution, the effect of additions of greenhouse gases to the atmosphere has been over 50 times the effect of changes in the sun’s output
Origins and Development - Human causes
-climate change can also be caused by human activities, such as the burning of fossil fuels and the conversion of land for forestry and agriculture
-since the beginning of the Industrial Revolution, these human influences on the climate system have increased substantially
-among other effects, these activities change the land surface and emit various substances into the atmosphere
-these in turn can influence both the amount of incoming energy and the amount of outgoing energy and can have both warming and cooling effects on the climate
-the dominant product of fossil fuel combustion is carbon dioxide, a greenhouse gas (so called because it produces the ‘greenhouse effect’ of making the Earth warmer, just how a greenhouse is warmer than its surrounding); carbon dioxide stays in the atmosphere for a very long time
-other greenhouse gases, such as nitrous oxide, also stay in the atmosphere for a long time
-other substances produce only short-term effects
-overall human activities since the Industrial Revolution have had a warming effect, driven primarily by emissions of carbon dioxide and enhanced by emissions of other greenhouse gases
-the buildup of greenhouse gases in the atmosphere has boosted the natural greenhouse effect
Effects of Climate Change
-the continuing human-induced enhancement of the greenhouse effect has the potential to warm the planet to levels never experienced before
-such climate change will have far-reaching and unpredictable environmental, social, and economic consequences
-the effect of climate change include:
> rising global temps (with temps in Canada rising more quickly than the global average);
> widespread melting of Artic sea ice;
> changing precipitation patterns; and
> changes in the frequency and intensity of extreme events
In Canada, such effects of climate change pose several further threats, including the following:
> melting permafrost threatens northern buildings and transportation and releases methane, which further accelerates global warming
> east and west coast sea levels will rise, threatening to flood cities, increase storm damage, and accelerate erosion
> increased activity of pest and invasive species pose risks to ecosystems and to the economy
> there is an increased risk of weather-related catastrophes such as droughts and floods
> hotter summers will bring increased risks of heat-related health problems, as well as longer and more severe forest fire seasons
The Scientific Consensus
-climate science is not one discrete field of science; the knowledge comes from a collection of scientists from many disciplines whose authority relies on their work for organizations that conduct primary research on climate science and who publish their work in peer-reviewed scientific journals
-among the core scientific disciplines that have developed the current understanding of climate change are the following:
> atmospheric and physical sciences
> earth sciences
> biological sciences
> mathematics, statistics, and computational analysis
-as many studies have shown, the claim that there is no consensus among serious scientist on climate change is without merit
-one 2013 analysis of almost 12,000 abstracts from scientific, peer-reviewed papers on global warming revealed that only 0.7 % rejected human activity as the cause
-a subsequent self-rating by almost 1200 authors of these papers showed that 97.2 endorsed this assumption
-the consensus arose very early and has been growing every year
Implications for Liability Insurance
-there has been a significant increase in legal actions seeking to hold corporations and governments liable for the consequences of climate change and severe weather events
-there have been very few legal actions in Canada dealing with climate issues, and these actions targeted governments
-legal actions are taking place in other places around the world, but the vast majority are in the US
-actions in the US and elsewhere have implications for Canada
-rights-based rulings in the Netherlands and Pakistan forcing political action has led to similar cases coming before the courts in many other countries, including Canada
Corporate Responsibility
-there has been an increase in legal action directed at private companies
-legal action may allege liability for:
> the impact of climate change and severe weather;
> failure to adapt critical infrastructure; or
> potential disclosure
-Canadian research finds that change in the climate contributed to the Fort McMurray wildfire and a study of the 2013 Calgary flood found that climate change increased the likelihood of extreme rainfall over southern AB, but there was no discernable difference in the 3-day surface runoff
-attribution science has recently been applied to many extreme events around the world to understand the impact of climate change on major loss events
-attribution is central in debates about liability and responsibility
-some courts have recognized that emissions are the dominant cause of climate change, and attribution science seeks to determine if climate change contributed to a specific extreme weather event
-coal, oil, gas, and other energy producers may increasingly be the target of legal actions
-the so-called ‘Carbon Majors’ account for most of the industrial emissions that are changing the climate, but they have not yet been found legally responsible for the impacts
-critical infrastructure may be a source of liability for those who develop, design, build, own, operate, or repair it if they fail to adapt to changes in the climate and severe weather risks
-service providers may be found liable if they cause others to experience a loss because of their failure to adapt to the risk of disruption from severe weather and other climate risks
-board members and officers and directors of companies may be found liable if they fail to address and disclose material climate risks
-regulators in the US, the UK, France, and elsewhere are requesting increased disclosure by insurers about physical and transitional climate risks
-guidance and expectations about climate risk disclosure and best practices for insurance companies are evolving, with the Task Force on Climate-Related Financial Disclosure expected to emerge as the gold standard
Government Responsibility
-some litigation against governments, including governments in Canada, seeks to compel more political and policy action to reduce emissions and promote adaptation
-as well, governments - especially local governments - and their agents have been found liable for failing to properly account for climate risks
-there has been little climate litigation in Canada, and so far, it has all been directed at governments
-some cases before the courts elsewhere in the world may have consequences for Canada
-governments are responsible for legislation, policy and regulation
-political and policy decisions in Canada are typically protected from judicial review
-policy choices are viewed as political, not legal issues
-for example, the courts in Canada dismissed an action seeking to hold the federal government liable for failing to meet its emissions reduction commitments under the Kyoto Protocol
-the courts also dismissed an action to hold the government liable for withdrawing from the Kyoto Protocol
-courts protect the rights of citizens
-climate change has been viewed in the Canadian courts as a policy issue for governments to decide, but it may be argues that environmental stewardship is a right that the federal government failed to defend
-the courts in Canada and internationally have found governments liable if they fail to adequately address climate risk tin the provision of essential public services, such as storm sewers and fire protection
-governments may be held responsible if they fail to design, construct, or maintain public infrastructure that reasonable anticipates climate risks
-legal findings of liability against governments in Canada have found evidence of the government’s failure to comply with established standards directly resulting in harm
-local and prov. and terr. governments own and manage nearly 98% of the public infrastructure in Canada, and their practices are expected to increasingly be challenged in the courts by those experiencing severe weather losses
Insurer Responsiblity
-the insurance industry is exposed to climate liability risk through the coverage it provides
-insurers intend not to cover their insureds for the consequences of past emissions
-but insurance policies to reflect that intent will probably be tested in the courts, especially by major energy producers likely to be subject to increased legal action
-insurers may be challenged when they refuse to defend and indemnify policyholders
-the insurance industry will face professional liability risks associated with climate change and severe weather
-directors’ and officers’ coverage will likely be challenged by growing investor and regulator attention to disclosure of physical and transitional risks
-rising expectation about the nature, extent, and timing of disclosures may present a challenge for insurers
-insurers may consider legal action against local governments that fail to design, build, and maintain public infrastructure to anticipate severe weather risks
-insurers may recover some of the costs they incur with disaster claims if they can prove that public agencies failed to appropriately manage climate risks that resulted in damage to private property
-considerable uncertainty remains in the assessment of liability for climate change
-legal actions have increased in the US and may begin to emerge in Canada
-the insurance industry learned from liability costs incurred by the tobacco and asbestos industries and has been working to ensure that any finding of liability for major emitters will not transfer to the insurance industry
