A recent report by Howden and Boston Consulting Group highlights the critical role of insurance in supporting the $19 trillion investment towards achieving net zero emissions by 2030, stressing the need for at least $10 trillion in coverage.
Despite efforts in providing coverage for green energy projects, insurers face challenges in underwriting new energy technologies and reducing coverage for fossil fuel projects.
This investment includes sectors such as energy, road transport, and buildings, encompassing large-scale projects like offshore wind and solar farms, as well as home insulation efforts.
Rowan Douglas, CEO of Howden’s climate team, emphasized the critical role of insurance in the energy transition, noting the significant pressure this will place on the insurance industry across various markets. The report underlines the complexities in underwriting new energy technologies due to their innovative yet riskier nature.
Nigel Topping, UN Climate Change High Level Champion at COP26, contributed a foreword to the report, pulling no punches. “The global response to the climate crisis represents a systemic failure in our collective approach to risk management,” he comments. “Growing levels of economic damage and human suffering are not being met with the political resolve, capital mobilisation or global collaboration needed even though we have known about the crisis for decades.”
Insurers already provide coverage for hydrogen-powered and electric vehicles, offshore wind projects, and hybrid building materials. They are also collaborating with green energy groups to mitigate risks, such as adjusting solar panel positions ahead of adverse weather conditions.
Despite these efforts, the report suggests that a substantial reduction in insurance for fossil fuel projects is unlikely in the near term, further stressing the industry. The increasing need for coverage against natural disasters adds to the sector’s challenges.
The insurance hurdle is something that is below the radar for many looking to deliver Net Zero. As the report says, “nothing gets financed ordinarily without insurance, but the financing of the largest capital expenditure of all time, the protection of nature-based solutions and expansion of new carbon and biodiversity credit markets, are being attempted largely without mobilising the power of insurance.”
The report is a timely reminder that risk mitigation – in all its forms – is crucial to the task.
