Modelling Climate Litigation Risk for (Re)Insurers

In response to the growing threat of climate change, the insurance industry has made significant investments in modelling and quantifying physical climate risks. However, the emerging risk of climate litigation has proven particularly difficult to model. In 2015 Mark Carney, then-Governor of the Bank of England and Chairman of the Financial Stability Board, warned that climate litigation poses “long-tail risks” for insurers that may be “significant, uncertain and non-linear." Since that warning, the number of climate-related cases has more than doubled, and the scope and financial significance of climate litigation has become increasingly clear. However, insurers and regulators still struggle to identify and quantify exposure to climate litigation risk.Modelling Climate Litigation Risk for (Re)Insurers assembles a toolkit to help academics, attorneys, insurance practitioners, and industry regulators model (re)insurer climate litigation risk. Section 2 of this report discusses the categories of climate litigation, and creates a definition of “climate litigation risk” tailored towards (re)insurer risk evaluation. Using this definition, Section 3 next systematically categorizes the risks, commercial opportunities, and operational flexibility that climate litigation presents to (re)insurers. Section 4 then discusses qualitative and quantitative techniques used to model these climate litigation risks, and outlines a simple climate litigation risk model for (re)insurers. Finally, annexes to this report (1) review regulations that require companies to assess and disclose their exposure to climate litigation; (2) outline key academic, industry, and government resources that discuss climate litigation risks and opportunities for insurers; and (3) highlight global climate litigation of particular significance to (re)insurers