A new report highlights the critical role of the insurance industry in enabling the transition to net-zero emissions. However, it also underscores the immense pressure this places on the sector to adapt and innovate.
$10 Trillion in New Cover Needed
Insurance broker Howden and Boston Consulting Group (BCG) estimate in their report that the energy, road transport, and building sectors will require at least $10 trillion in new insurance coverage between 2023 and 2030.
This covers a wide array of initiatives, from massive offshore wind and solar farms to the insulation of existing homes, all vital for achieving net-zero goals.
Insurance as a “Wake-Up Call”
Rowan Douglas, CEO of Howden’s climate team, characterizes the report as a “wake-up call.” He emphasizes the essential role insurance plays in supporting the energy transition and the unprecedented challenges it presents.
These pressures on the market will be felt globally and at an accelerated pace as the world strives to achieve net-zero targets.
Executives and policymakers are increasingly recognizing the importance of insurance in underwriting the risks associated with new energy infrastructure and technologies. Insurers are already offering additional coverage for a range of green solutions, from hydrogen-powered and electric vehicles to offshore wind farms and hybrid building materials. However, they are also cautious due to the lack of historical loss data in these emerging areas.
Balancing Innovation and Risk
New energy technologies often push the boundaries of innovation, leading to higher risks that are more difficult to underwrite. This could result in a shortage of insurance capacity, with coverage potentially gravitating towards more established and profitable areas.
Insurers are working closely with green energy companies to mitigate the risks associated with new technologies. This collaboration includes adjusting the positioning of solar panels in anticipation of adverse weather events, such as recent hailstorms, to reduce potential damage.
Continued Coverage of Fossil Fuel Projects
The report’s authors do not anticipate a significant decrease in insurance coverage for fossil fuel projects by the end of the decade, which could have freed up capacity for green projects. Instead, they predict a continued need for insurance in both sectors.
The report further emphasizes that the growing need for insurance coverage against natural disasters will add another layer of pressure on the industry. As climate change intensifies, the frequency and severity of these events are expected to rise, putting further strain on insurers’ ability to meet the demands of a net-zero transition.