Climate Change and Insurability: A Growing Challenge for the Insurance Sector

Climate change is influencing the liability landscape, with insurers experiencing evolving challenges. Rising litigation and increasing concerns around insurability, especially in higher-risk areas, are contributing to a more complex environment.

As courts expand their scrutiny of corporate climate conduct and regulatory expectations grow, insurers must adapt their underwriting strategies to address both emerging legal risks and the volatility of a rapidly changing market.

Human Rights and Corporate Accountability

Two landmark advisory opinions from the Inter-American Court of Human Rights and the International Court of Justice have reinforced the notion that climate change is a human rights issue. While these opinions are not legally binding, they carry significant persuasive authority and are expected to influence national courts, planning decisions, and climate policy.

Both courts emphasised the duty of states to regulate private actors, including corporations. This has direct implications for corporates including insurance companies, as it signals increased scrutiny of corporate climate impacts and emissions reporting. The Inter-American Court went further, setting out expected legislative measures that states can take for companies to conduct climate due diligence and reduce emissions, mirroring trends in European sustainability regulation.

European Litigation

Europe has emerged as a hub for strategic climate litigation. Historically focused on governments, recent cases increasingly target corporations. The Milieudefensie v. Shell case in the Netherlands, for example, saw the court impose a duty of care informed by human rights and climate science, although a fixed emissions reduction target was later overturned on appeal. Nonetheless, the principle of corporate accountability remains intact.

Another notable case, Lliuya v. RWE AG, attempted to link corporate emissions to climate harm abroad. While ultimately unsuccessful, the court recognised the potential for transboundary liability and affirmed that private companies can be held accountable for their climate contributions.

US Litigation and Legislative Tensions

In the United States, climate litigation is unfolding on multiple fronts. Municipalities have filed suits against fossil fuel companies for allegedly concealing climate risks, with the Honolulu v. Sunoco case potentially heading to trial in 2026. Meanwhile, states like New York and Vermont have introduced “climate Superfund” laws, imposing fees on major emitters to fund adaptation projects. These laws are now facing federal challenges on constitutional grounds.

Insurers should also note the emergence of coverage disputes, such as Aloha Petroleum Ltd v. National Union Fire Insurance Company of Pittsburgh et al, which addressed the applicability of pollution exclusions in climate-related claims.

The Insurability Crisis

Canada’s climate policy landscape is currently unsettled, with key initiatives like carbon pricing and EV mandates under review. While climate litigation remains nascent, cases against governments are gaining traction, and pressure is mounting for actions against private actors. The insurability crisis is particularly acute in Canada, where 10% of households are highly exposed to flooding but lack access to flood insurance.

Globally, climate-related insured losses have exceeded $100 billion annually since 2020, with 2025 projections surpassing $200 billion. This has led to rising premiums and reduced availability of cover, particularly in high-risk regions such as California, Florida, and parts of Canada. In the UK, average home insurance premiums rose by 20% in 2024.

Opportunities in the Transition

Despite the challenges, the transition to a net-zero economy presents opportunities for insurers. Regulatory bodies, including the UK’s Prudential Regulation Authority, are urging insurers to assess transition risks and align underwriting with climate goals. Initiatives like the Partnership for Carbon Accounting Financials (PCAF) and the UN’s Net-Zero Insurance Alliance offer frameworks for measuring and reducing insurance-associated emissions.

Innovative products such as parametric insurance and carbon credit cover are gaining traction, while insurers are increasingly involved in supporting climate technology and renewable infrastructure projects. The Geneva Association has set out a vision of how early engagement with green tech project developers can improve insurability and accelerate commercialisation.

Climate change is  influencing legal, regulatory, and market dynamics, with potential implications for insurability and underwriting. As litigation trends evolve and financial impacts increase, insurers must adapt, both to mitigate risk and to seize the opportunities associated by the transition to a low-carbon economy.