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New report warns global insurance premiums for climate resilience and natural catastrophe protection are set to increase by 50 per cent by 2030 putting further pressure on efforts to reach net zero
More than half the $19tr which has already been committed to financing the global net zero transition through to 2030 will require additional insurance coverage, new research has warned.
According to international insurance group Howden and Boston Consulting Group, said corporates and low carbon infrastructure developers should start exploring insurance options for their climate risk management strategies if they are to secure adequate long-term coverage.
The researchers, which unveiled their findings in a study at the De-Risking Summit at Mansion House in London earlier this week, said insurance could prove a "game changer in unlocking climate finance at the speed and scale required".
The researchers warned found premiums for climate resilience and natural catastrophe protection are set to increase by 50 per cent by 2030, and could reach as much as $200-250bn as a result of increased annual losses caused by climate-related events, increased exposure for insurers and their clients, more detailed climate risk disclosures, and governments transferring risk to private markets.
The report said these trends will place "unprecedented" structural pressure on insurance systems across public, private, and mutual markets and warned "there is no guarantee" the market will be able to meet growing demand for coverage.
While insurance promises to be a major enabler in unlocking investment in the clean energy transition and helping economies adapt to intensifying climate impacts, the researchers said there will need to be a "paradigm shift" in how risk management is prioritised if climate finance is to be deployed at the requisite scale.
To ensure access to adequate insurance protection, the researchers urged clients to move away from an annual procurement exercise and take a more long-term view of risk in collaboration with insurers, which could lead to multi-year coverage, public-private insurance solutions, and more sophisticated risk management.
They suggested this approach could enhance the bankability and insurability of new investments and support businesses in achieving both their net zero transition strategy and greater climate resilience.
On the supply side, they urged the insurance market to innovate to meet the growing demands of the climate transition to ensure coverage remains accessible and affordable across sectors and regions.
They advised insurers to assume a "central role" in the de-risking discussion within the finance community to strengthen the global response to climate change.
"Insurance is the financial bedrock needed to de-risk investments and attract the additional capital necessary to mobilise the climate transition," said Rowan Douglas, chief executive of climate risk and resilience at Howden.
"Astute companies are now elevating future insurability to boardroom level discussions because it will be essential to maintain access to capital. The key is developing long-term partnerships with insurers to build shared expertise and trust and optimise future access to scarce underwriting capacity. The alternative is an invitation to climate valuation risk."
Morenzo Fantini, managing director and partner at Boston Consulting Group, said "achieving net zero and climate resilience with adaptation strategies is an unprecedented challenge for all economies".
"Without sufficient insurance to de-risk markets, a smooth transition will be impossible," he warned. "The insurance market must lead the de-risking dialogue to ensure the insurability and bankability of climate action."
Alongside the report's various recommendations for corporates and insurers, Howden also announced a collaboration with the UN Climate Change High-Level Champions to work with partners to deliver an Enabling Climate Insurance Breakthrough group.
Howden estimated insurance services could expedite delivery of roughly half of the priorities outlined in the UN Climate Change High-Level Champions' 2030 Climate Solutions roadmap. As such, the proposed Insurance Breakthrough group would aim to enable better insurer-client collaboration to understand risks and encourage co-operative efforts to de-risk projects, mobilise new insurance capacity, and support low-carbon investments.
"Managing risk is one of the biggest barriers to a just and resilient transition," said Nigar Arapadarai, UN Climate Change High-Level Champion for COP29. "Insurance can provide the certainty, clarity and security to achieve the radical transformation needed and will be instrumental across sectors and industries globally to shape a net zero, fair future for all."
You can now sign up to attend the fifth annual Net Zero Festival, which will be hosted by BusinessGreen on October 22-23 at the Business Design Centre in London.
