UK: Climate Change: How Will Insurers Be Affected?

Last Updated: 20 February 2006
Article by Aidan Thomson

Originally published in The Insurance Law Quarterly Review: Winter 2005

The Third Assessment Report of the UN Intergovernmental Panel on Climate Change (2001) confirms the broad scientific consensus that climate change is already occurring and will continue. The balance of evidence suggests that the cause is the increasing concentration of greenhouse gas in the atmosphere resulting from the burning of fossil fuels.

Some governments have already begun to respond. Parties to the Kyoto Protocol are now bound to reduce their combined emissions of greenhouse gases by at least five per cent from 1990 levels. In the EU, a carbon dioxide emissions trading scheme (the "EU ETS") was set up this year as part of an effort to curb emissions from certain industrial sectors. Other governments, including the US, have been much slower to act, or even accept the link between greenhouse gas emission and climate change.

Even if the response were immediate and comprehensive, it would take many years to have any impact on the current scale or rate of climate change. The following can therefore be expected:

  • increased severity and frequency of extreme weather events: heatwaves, floods and hurricanes;

  • health impacts: heat-related deaths; increasing prevalence of vector-borne diseases; increased respiratory problems; and
  • agriculture and forestry impacts: changes in climate could affect water availability and the prevalence of pests and diseases, in turn affecting crop ranges and production.

The effects of climate change are already beginning to impact upon the insurance industry. The ABI’s June 2004 Report entitled "A Changing Climate for Insurance" highlights:

  • changing patterns of claims, particularly (but not exclusively) on household, property and business interruption accounts. In response to this, insurers will need to understand the changing risks, encourage customers to avert them, and adopt suitably revised policy wordings and exclusions;
  • changing customer needs. Customers may wish to limit new liabilities arising from climate change regulation or to insure the increasing array of low carbon technology assets. Alternative Risk Transfer mechanisms (e.g. weather derivatives) could become more relevant;
  • new, strengthened regulation. This could affect business costs and impact on the investment environment; and
  • reputational risk. Increased premiums and/or revised policy conditions, could have a negative impact on the perception of the insurance industry.

The overall effect of climate change on underwriting risks for general insurance products other than property, household and business interruption has not yet been fully evaluated. However, the question of whether anyone could be sued for the costs incurred as a result of climate change, is relevant to liability policies.

Litigation alleging a link between the activities of companies or industry sectors responsible for greenhouse gas emissions and climate change has already begun. By December 2004, ten such claims had started, mostly in the USA, but also in Australia, Germany and Argentina, founded on one or more of public law, civil law, human rights and international law.

In particular, in State of Connecticut v American Electric Power Co, eight US States, New York City and NGOs brought an action in nuisance against five US power companies. The claim was dismissed recently, but this is unlikely to herald the end of climate change-related lawsuits.

As to the possibility of civil actions in the UK in tort against those responsible for greenhouse gas emissions, a number of points arise.


A claimant would have to show that damage resulted from the defendant’s greenhouse gas emissions. Key questions will be:

  • can it be shown that the event that caused the relevant damage was in fact due to greenhouse gas emissions and was not simply "one of those things"?; and
  • can damage be traced back to any one emitter?

Potential claimants will find these questions very difficult to answer, but their position may not turn out to be hopeless:

  • The science of attributing increased risk of adverse weather to greenhouse gas emissions is developing. A recent study led by Myles Allen at Oxford University concludes that it is very likely that the risk of having a regional summer heatwave such as that experienced in Europe in 2003 has increased by a factor of at least two due to human intervention.
  • There are many emitters of greenhouse gases. Nevertheless, it has been said that 80 per cent of all carbon dioxide emissions worldwide are linked to only 122 corporations.

The House of Lords’ decision in Fairchild v Glenhaven Funeral Services (2002) demonstrates that the courts will adapt the traditional tests of causation where justice requires. In time, causation in climate change liability cases might be demonstrated.


Defendants will claim that the contribution of greenhouse gases to climate change has only recently been examined and that they are not accountable for historic greenhouse gas emissions made before the impact of those emissions could have been known. However, the possibility that there might be a link between man and climate change has been widely appreciated for well over a decade and the link has become increasingly certain during this time. It is clearly arguable going forward that corporations are aware of the potential problems that increasing greenhouse gas emissions create and should act accordingly. It might also be argued that corporations have already been in this position for a number of years. There may already be one or two decisions taken by corporations (e.g. power utilities) in recent years that could, when judged against the prevailing state of climate change knowledge at the time, come back to haunt them.

The liability question may not stop at tort: human rights and public law will also play a part. Depending on developing science and political will, there must also be a possibility in the longer term of the introduction of a statutory regime for climate change liability (just as the contaminated land regime was introduced under Part IIA of the Environmental Protection Act 1990).

Why is the question of climate change liability relevant to insurers even at this early discussion stage? These are two main reasons:

  • Insurers may one day consider it appropriate to bring an action against an emitter in an attempt to recover losses sustained as a result of climate change - related risks.
  • Insureds that are responsible for historic greenhouse gas production may, if sued, try to pass on liability under liability policies (e.g D&O policies). Were this to happen, it would raise a number of issues, in particular the effectiveness of any pollution exclusions, the question of whether the event that caused the loss was sudden, accidental and unintended, and, on the basis that carbon dioxide emissions have been ongoing for many years, the question of whether historic occurrence-based liability policies might be triggered.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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