The rising tide of liability risks addressed by Verisk

An increased frequency and severity of climate-related weather events is bad for insurers and reinsurers for obvious reasons: they end up paying more claims. It also brings uncertainty around the future trajectory of such claims if climate change is partly to blame. 

Additionally, especially in recent years, it has caused other challenges around how to manage the risk associated with secondary perils and price for these appropriately.

As if re/insurers did not have enough on their plates, climate-related weather events are increasingly causing a different challenge, which is less discussed—for now, anyway—around liability risks. This, Eric Gesick, senior vice president of liability analytics for Verisk Extreme Event Solutions, told Baden-Baden Today, is emerging through three key pathways.

The first is through companies’ direct contribution to climate change. Companies can, and have, been directly sued on this basis, as can individual directors and officers. Companies that fail to address climate-related issues open themselves up to the risk of litigation and/or regulatory investigations and actions. 

The second is a failure to adapt or mitigate. The third is on the basis of disclosures that may misrepresent risk. Both these counts open a can of worms when it comes to law suits and the corresponding liability risk. Some commentators have even drawn analogies with the impact of asbestos-related claims once the link between asbestos and health impacts became clear.

The point is that insurers cannot wait until climate litigation becomes a large threat if they wish to shield themselves from climate-related losses. As insurers grapple with these mounting pressures, Verisk is looking to act. It is stepping up with analytics and solutions to help them navigate the turbulent landscape.

“Through our research, and in conjunction with our natural catastrophe modelling expertise, we’ve developed climate change liability risk scenarios,” Gesick explained.

“Our latest release includes climate change disclosure scenarios for the US, UK and Europe, showing how we believe a shock scenario could unfold in each jurisdiction.”

“Claim severity has shot up, driven by social inflation across several liability lines.”

Other threats

Climate isn’t the only area where liability risks are evolving. Emerging threats such as cyber, environmental and social responsibility issues are also pushing insurers into uncharted waters.

“Verisk is helping the insurance industry address cyber challenges by creating and supporting forms, rules and loss costs to address cyber perils worldwide,” said Gesick.

“We’re investing in companies that are developing cutting-edge methods for collecting data on high-quality, technographic data and single points of failure.

“Our Arium team is researching these areas to build a representative view of risk, allowing re/insurers to build bespoke scenarios and evaluate their potential exposures,” he added.

This ability to tailor risk assessments to specific scenarios is giving insurers the flexibility they need to stay ahead of emerging liabilities.

In a post-COVID-19 pandemic world, the liability landscape has changed significantly.

“We haven’t seen commercial claim frequency return to pre-pandemic levels, but claim severity has shot up, driven by social inflation across several liability lines,” Gesick pointed out.

“One of the biggest areas of concern now is systemic and emerging losses, where a single event can generate multiple claims across lines of business and exposure years.”

The numbers are staggering, according to Gesick: “Our research shows that, over the past 30 years, approximately 40 to 55 events with at least £100 million in potential insurable losses occur every calendar year—and that number is expected to grow.”

In Europe, new regulatory frameworks are creating further challenges for insurers, but Verisk is keeping pace.

“We closely monitor regulatory frameworks and incorporate their impact into our liability loss estimates for systemic and emerging risks,” Gesick said.

“EU directives—such as the Drinking Water Directive which will require member states to monitor water for PFAS by January 2026—are likely to influence litigation trends in the coming years.”

London’s insurance market, a global hub, is also benefiting from Verisk’s innovations.

“For US risks written in the London Market, Verisk’s insurance programme content, including forms, rules, and loss costs, is available through a licence with Lloyd’s,” Gesick shared.

“Our Arium product continues to enhance its liability catastrophe modelling framework, which includes stochastically-generated casualty catastrophe event sets.”

As insurers face increasing complexity, Verisk’s tools are evolving in step with the times.

“We’re building a commercial liability insurance industry exposure database so re/insurers can evaluate their market share of exposures and modelled losses from industry liability events,” Gesick concluded.

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