It never rains but it pours: AIR

The increased risk of flooding from the results of climate change has crept upon insurers overs decades. A combination of melting land-based ice and thermal expansion means that, as the earth warms, the oceans rise.

“If all the ice on this planet melted, it would contribute 60 metres to sea level rise,” explained Peter Sousounis, vice president and director of climate change research at modeller AIR Worldwide, during a session of the Singapore International Reinsurance Conference on Monday, November 15.

“We don’t expect that to happen any time soon, but you might want to think about that and whether your house or someone else’s you know will be underwater.”

Sea levels have risen only gradually to date—about 20 to 24cm since the late 1800s, but the pace is accelerating. In the early part of the last century, the rise averaged about 1.5mm a year. Today, it’s about 3.4mm. Moreover, some areas are affected more than others: sea level rises have been relatively high along the east coasts of Asia and the US, and particularly high in the Gulf of Mexico, for example.

With that comes an increased risk of tidal flooding, sometimes termed nuisance flooding—but that is a misnomer, said Sousounis.

“This type of flooding doesn’t necessarily cause catastrophic damage—hence the name—but it’s more than just a nuisance,” he said. Areas face flooding “from above and below”, with overtopping of embankments and increased water pressure forcing backups of sewerage pipes and drainage.

Basements and drainage systems will flood; railroads and roads can weaken because of compromised soil; sewer pipes can be damaged; and streams will flood. It can also raise the water table and enhance the potential for corrosion for building support structures, explained Sousounis. This may have been a factor in the collapse of the Champlain Towers condominium in Florida in June, for example.

On top of this, higher sea levels will combine with storms that are expected to worsen under climate change. “The most intense storms are expected to become even stronger, which would push water to even greater heights during storm surge,” he explained.

The expected impacts under the various scenarios outlined by the Intergovernmental Panel on Climate Change have been mapped in detail at a macro level and, in many cases, with detailed local modelling. As Sousounis explained, this information is crucial for resilience planning, helping inform where to build or raise sea walls and considering whether other infrastructure may require redesigning.

“That’s exactly what these studies are being used for—to prepare for the future,” he said. “But somebody will pay for all that.”

Low probability, high risk

The matter of whether it will be businesses and their insurers that pay was taken up by Lucian McMahon, AIR’s research manager of casualty analytics.

Climate change litigation has been a feature in the US for over a decade, and cases have been filed in Australia, the UK and various EU member states. In many instances, governments are the defendants, but corporates have also been drawn into the net.

As McMahon noted, there have been claims to compel behavioural change and to seek monetary damages, and sometimes both: action against an Australian bank, for instance, had alleged that it failed to disclose climate change-related business risks.

“Plaintiffs can sue to compel fair disclosure on one hand, and on the other for payouts based on a theory that this failure to disclose caused them economic harm,” explained McMahon.

Cases focusing on sea level rises are relatively common with, typically, coastal municipalities claiming oil and gas majors have contributed to climate change and seeking compensation, in part to pay for the cost of better flood defences.

As McMahon noted, a host of barriers stand in the way of litigants. They include questions of jurisdiction, with US courts holding that cases are barred under federal law and yet to decide whether they can be held in state courts; and attribution, particularly given that it’s the use of oil and gas that’s the most significant contributor to emissions, rather than their extraction. Much doubt remains on whether insurers would ultimately pick up the tab.

“Of course, the multi-billion dollar question is to what extent commercial liability policies would respond to these harms,” said McMahon. So far, that’s not a question that’s needed to be addressed.

“For what it’s worth, there does seem to be a general sentiment out there that these lawsuits have a low probability of success given the barriers,” he added.

However, cases are often motivated by political factors, meaning that plaintiffs are not easily discouraged by losses. Moreover, there is potential for the targets for liability to spread beyond the oil and gas companies, to energy operations, for example, or transportation such as airlines and shipping.

Opening the gates

Crucially, if only one case were to succeed, it could open the way for a rush of others.

“In AIR, we’ve taken to calling it the floodgate theory of litigation,” said McMahon. “We think that this could potentially unleash a torrent of litigation following the suit. Municipalities, counties, states and other plaintiffs might pile on to the bandwagon and seek redress from oil and gas companies or other defendants through this kind of litigation if it were to move forward.

“It is a significant concern when it comes to this risk.”

Under AIR’s most severe loss scenario, which assumes widespread successful litigation, it estimates “ground-up economic losses” (before any application of insurance terms and conditions) of over $100 billion in the US alone.

“In the context of liability catastrophes, that is quite a severe event,” McMahon concluded.