Insuring a Greener Future: Opportunities in the Climate Change Era
The world is currently undergoing a significant change to address climate change. Governments and companies have pledged to achieve net-zero greenhouse gas emissions, and this change will require an estimated annual investment of more than $9.2 trillion in energy and land-use systems. This will lead to the greatest capital reallocation in a century.
This is a critical moment for insurers as they are exposed to new climate-related risks and opportunities. They must take a proactive approach to unlock growth and stay relevant in a net-zero future.
As this transformation unfolds, new forms of volatility are emerging. Capital reallocation to low-carbon technologies is rapidly reshaping industries, and new technologies face business cases with uncertain economic viability and scalability. The demand for transparency on climate risk and emissions is also increasing, driven by regulatory requirements and investor and consumer advocacy. The risk of litigation for climate inaction is also growing. The rising physical risk continues to affect communities and economies.
Insurers have a unique opportunity to help catalyze an orderly transition to net-zero emissions by creating innovative products and solutions to address these new forms of volatility. They can identify and develop climate-focused solutions in three major areas: insuring the net-zero transition, creating new risk transfer solutions for rising physical risks, and providing adaptation and resilience services.
The demand for insurance will grow in line with investment in low-carbon technologies, and new opportunities will emerge to support derisking along the value chain. For example, a hydrogen developer may be more likely to pursue a project if there is protection in the event the off-taker becomes insolvent. Insurers can also develop parametric policies to provide more predictable and affordable coverage for natural catastrophes and chronic weather shifts. The rising physical risk will continue to affect communities, and the public and private sectors must work together to address protection gaps and ensure affordable coverage.
