Climate Change Fuels Pollution Liability: How the Insurance Industry is Adapting
Last year was a record-breaking year for billion-dollar natural disasters in the United States, and 2024 has had its own challenges, with two major storms hitting the southeast in just a two-week period. As climate change’s impact increases, insurance underwriters strive to ensure that pollution liability aligns with emerging weather trends. Here’s what this may look like:
Accounting for More Damaging Weather
- Named storms, floods, and wildfires are increasingly common. These events may contribute to the release significant pollutants, including hazardous chemicals, wastewater, and fuel spills, and companies are often held financially responsible for the environmental damage created by these unleashed contaminants.
- Underwriters must continually reevaluate the elevated risks for pollution claims tied to these disasters and adapt their policies accordingly.
More Regulatory Scrutiny
- Governments are boosting environmental regulations in response to growing environmental concerns. The additional statutes and stricter requirements increase the likelihood that companies and contractors will fail to comply. The result? More fines, penalties, lawsuits, and claims for businesses.
- Pollution insurance often includes legal defense and regulatory liability coverage. These expenses have to be accounted for.
Long-Term Impact of Rising Sea Levels
- Rising sea levels threaten coastal infrastructure; this could trigger leaks from underground storage tanks (USTs), chemical plants, or industrial facilities.
- Underwriters attempt to predict how gradual environmental degradation may lead to pollution claims.
Shifts in Industrial Activities
- Climate change drives changes in energy production and industrial practices, such as a greater reliance on renewable energy sources, a growing sector of the environmental insurance industry.
- These shifts come with their own unique pollution risks, which underwriters must evaluate. For example, improper battery disposal and decommissioning of renewable energy equipment creates contamination. Likewise, installing solar panels and wind turbines can disrupt soil and displace wildlife, damaging delicate ecosystems.
Supply Chain Vulnerabilities
- Climate-related disruptions to supply chains increase the risk of pollution incidents, particularly when hazardous materials are involved.
- Policies must account for potential liabilities arising from accidental releases during transport or storage due to climate-driven disruptions.
Litigation Trends – Frequency and Severity
- Climate change-related litigation is increasing, especially for companies potentially contributing to pollution that exacerbates climate change.
- Pollution insurance underwriters consider the financial impact of these lawsuits and structure policies to address these evolving claims.
Focus on Risk Mitigation and Sustainability
- Companies are proactively implementing sustainable practices and safety protocols to reduce their pollution liability risk.
- Underwriters can provide better coverage options to these entities when they are familiar with these exposures and have a companywide stance on these issues.
There are many variables impacting how underwriters evaluate pollution releases resulting from climate change. Beacon Hill Associates has the experience and knowledge to help our agents navigate the changing landscape of coverage for exposures related to climate change. Contact us about coverage options or send a submission today.
Type: Blog