Clifford Chance

Climate change is at the top of the agenda for policy makers, regulators and globally significant companies. It is an unprecedented risk and is under increasing scrutiny by shareholders and regulators. For insurers, climate change also presents opportunities for the industry to do what it does best – assessing and providing protection against risk – both in managing their own business and providing innovative products for policyholders to protect them against some of the economic implications.

The 2020s will be a decisive decade in the race to deal with climate change and insurers may well play a key role in deciding the outcome of these efforts. 

Climate change risks for insurers

Climate change affects insurers on both sides of their balance sheet, disrupting insurers' assets as well as their liabilities under the policies they write. Given the wide range of climate change risks, many regulators and industry bodies have adopted the helpful classification of the types of climate risks coined by the Governor of the Bank of England, Mark Carney 2:

• Physical risks, the impact of the climate on physical assets which may lead to impairment of insurers' assets and/or the property which they underwrite. 
• Transition risks, the risk in moving (and being required to move by laws, regulations and policy decisions) from the "brown" where we are now, towards the "green" world by adapting to the changing climate and seeking to stop further damage.
• Liability risks, the risk of increased liability resulting from litigation on climate change issues.

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