Earth and Water Law Group partner Lindene Patton is globally recognized for her expertise in climate attribution liability, risk management, data, resilience and related risk management solutions, insurance policy and other financial services product development. There, she supports InsurTech startups and other clients in navigating the rapidly transforming landscape of property insurance in the era of climate change.
As an advisor to ClimateCheck, Patton leverages more than 20 years of experience in the insurance industry, corporate law, real estate, and risk management to advise our team on product development and strategy.
“Twenty years ago, if you wanted to know the climate risk of a specific property, that analysis would have cost hundreds of thousands of dollars,” said Patton. “Today, with tools like ClimateCheck, you can type in an address, and boom—you can know that this location is exposed to these risks with this level of frequency.”
As the insurance industry grapples with increased financial and physical risk from climate hazards, Patton says services like ClimateCheck give insurers, lenders, property owners, and others essential information about climate risk.
ClimateCheck: Why are some insurers pulling out of places experiencing climate-driven disasters?
E&W Law Partner Lindene Patton: The situation in California, Florida, and now in places like Colorado is incredibly complicated. You can insure anything for a price. The issue is, will someone buy that insurance for that price, and are you permitted to charge the price that's appropriate for that risk? In personal and some commercial insurance, a carrier has to get approval from the insurance commissioner to increase prices over a certain amount, and the information they're permitted to use in their models is controlled in that approval process.
There has been a historical resistance to forward-looking pricing by insurance regulators. They want to be able to demonstrate that losses occurred. Insurers have had to lose money before they could adjust their rates, and even then, they weren't necessarily permitted to adjust rates because a regulator might say, “Well, that was an unusual event, it'll never happen again.” When you bleed enough money, at some point the carriers are going to say, “That's enough.” The result in California is that the insurance commissioner has agreed that as of late 2024, insurance carriers will be permitted to use certain forward-looking climatic modeling information in their rate setting. But I think there will be a lot of negotiation regarding the details of acceptable modeling.
ClimateCheck: How are property insurers starting to use climate risk data?
Patton: Insurers may use climate risk data in the process of identifying whether they want to work with a particular group, region, or industry based on its risk exposure. The industry also uses climate data in the adjustment of claims, to determine whether a policy is triggered or not, or to help detect fraud and determine whether a claim is legitimate.
They use climate data for underwriting—looking at what will happen at a particular location, whether that's a residence or a commercial building, and whether that structure is fit for purpose, given the current exposure and what's likely to occur during the life of the insurance policy. Insurers are also interested in understanding how climate data is used by their clients. If an architect or an engineer is not properly considering climate-specific impacts that are going to occur over the useful life of the development or building they're designing, that's problematic.
ClimateCheck: How might climate risk data transform the claims process?
Patton: I think there’s value in looking at climate data to figure out the smart way to rebuild once disaster occurs. I'm talking about what they've done on the Gulf Coast, which is that when an event occurs that, say, damages a roof, insurers are required to rebuild to a fortified standard, because the expected climatic conditions require a more resilient roof. The insurance industry has an opportunity to be part of the solution in a way that they're not today, but it's going to take some time. I think investors and REITs can be part of that solution, too—to understand what adaptation and mitigation should be done by the companies they invest in to improve resilience in the face of climate change.
ClimateCheck: What does all this mean for commercial property owners?
Patton: In the commercial context, there’s a lot of value in modeling climate risk, because you're not always just worried about structural damage. If those structures house people or hazardous materials and you as the commercial property owner don't explore readily available climate data, you might not take risk management measures that could have protected people or avoided environmental damage, or worse. Is it enough to just comply with the regulations, or could the property owner be held liable for those damages? There's something to be said for commercial property owners understanding the climate risk at their facilities. If they can make an investment in resilience over time, that should bear out in a reduction in the assessment of risk.
For investors, it’s important to look at climate data so you understand what could happen at the location of that investment, and make sure the entities you're investing in are taking appropriate measures. I expect that as time progresses, we’ll get more data and more granularity in that data. For example, you could do topographic modeling for a commercial property and know that there's no way that one side of the property is going to flood, but the other side of the property is going to flood, and you’ve got to do something about it to get that coverage or to secure that investment.