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Climate change impacting on Dutch insurance market

20 January 2022

The potential impact of climate change has seen the Government of the Netherlands commit to reducing its carbon emissions to net zero by 2050.

While that target is still some way off, climate change is already having a significant effect on the country’s insurance industry. The Authority for the Financial Markets (AFM), the conduct supervisor for Dutch financial enterprises and financial service providers, is urging insurers to inform policyholders on the increasing cover limitations as a result of climate change.

The AFM is also asking insurers, as well as the Dutch government, to take appropriate action to encourage insurability of climate risks in the future, including the option of mandatory insurance or the creation of collective (re-)insurance pools.

Environmental litigation in the Netherlands, with Royal Dutch Shell (RDSa.L), a notable target, is leading to court orders to ensure compliance with climate targets. The Dutch wing of environmental group Friends of the Earth, which won a landmark court case against Shell last year, has now demanded 30 corporations publish plans for big cuts in greenhouse gas emissions.

In the current Dutch system, Directors &Officers are obliged by law to act in the interest of the company. However, a group of legal professors argue that this focus on profit is damaging to society and therefore should include an obligation for directors to act not only in the interest of the company, but to also make sure the company acts as a responsible citizen.

The legal professors opted to include this corporate responsibility in the Dutch Civil Code. As a result, insurers are concerned this trend of activistic litigation will lead to more D&O claims in the future.

Insolvencies caused by the COVID-19 pandemic did not become as widespread as expected in the Netherlands, which meant D&O insurers did not receive COVID related claims in the numbers they feared.

However, there was a further hardening of the D&O market with a significant price rise cause in part to the scarcity in capacity and new risks such as cyber and climate change related claims.

As in other areas of the world, the Netherlands has also seen a number of class action cases involving major corporations such as VW, FiatChrylser, Mercedes, Oracle & SalesForce. Actions against the Dutch State have also been started making the country a battle-ground for follow-on litigations regarding EU competition law cases.

There are several cartel cases pending in the courts while shareholder groups are pursuing claims for lost shareholder value and bankruptcy proceedings. Litigation funding has become a factor with US firms moving into the market.

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