Why insurers have a $10t role in mobilising the climate transition

Howden and BCG said insurance premiums are projected to rise by 50% by 2030.

More than half of the $19t allocated for financing climate transition by 2030 will necessitate additional insurance coverage, Howden and Boston Consulting Group research revealed.

"Insurance is the financial bedrock needed to de-risk investments and attract the additional capital necessary to mobilise the climate transition. Astute companies are now elevating future insurability to boardroom-level discussions because it will be essential to maintain access to capital,” Rowan Douglas CBE, CEO, Climate Risk and Resilience, Howden, said in a joint media release.

“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,” Douglas added.

Simultaneously, insurance premiums aimed at climate resilience and protection against natural catastrophes are projected to rise by 50% by 2030, amounting to $200b to $250b annually. 

This increase reflects heightened annual losses from climate events, expanding exposures, increased climate risk disclosures, and governments transferring risk to private markets. These pressures are expected to strain insurance systems globally, across public, private, and mutual sectors, posing challenges to meeting the escalating demand.

Whilst insurance holds promise as a catalyst for enabling the climate transition and enhancing economic adaptation, achieving these goals will require a fundamental shift in prioritizing risk management. 

The report urges businesses to move beyond yearly procurement practices towards adopting a long-term view of risk management, collaborating with insurers to develop multi-year coverage solutions, public-private partnerships, and forward-looking analytics. 

This strategic shift aims to bolster the bankability and insurability of investments, supporting businesses in realizing their transition strategies and fostering greater climate resilience.

On the supply side, insurers are called upon to innovate and expand their capabilities to meet the evolving demands of the climate transition, ensuring insurance remains accessible and affordable across different sectors and regions. 

Moreover, insurers are encouraged to play a pivotal role in discussions on de-risking within the financial community to strengthen the global response to climate change.

“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. The insurance market must lead the de-risking dialogue to ensure the insurability and bankability of climate action.” concluded Lorenzo Fantini, Managing Director and Partner, Boston Consulting Group (BCG).