How insurers can capture climate opportunities

The insurance industry plays a crucial role in helping individuals, businesses and governments adapt to and mitigate climate change impacts, and in enabling the transition from brown to green energy. Liz Henderson, global head of climate risk advisory at Aon, outlines the growth opportunities and risks.

Analysis from Aon’s Strategy and Technology Group (STG) has identified more than $20bn in potential premium growth by 2030 related to environmental megatrends – these are powerful transformative trends that are shaping the future landscape and driving potential demand for insurance.

Of the 80 transformative trends identified by STG, around a quarter relate to environmental factors, including climate change adaptation and mitigation, the transition to green energy and biodiversity.

Insurance for resilient infrastructure development, electrification, carbon capture and storage, and the decommissioning of carbon-intensive assets combined could generate gross written premiums of between $8bn and $2bn.

These transformative trends present immediate growth potential and can be addressed today – although carbon capture and storage would require some additional innovation or investment in capabilities.

Unlocking energy transition investment

The energy transition is attracting huge investment, from the expansion of renewables to emerging technologies. Annual clean energy investment worldwide will need to more than triple by 2030 to around $4trn to reach net-zero emissions by 2050.

While the need to expand sustainable energy capacity is clear, investments do not always flow as smoothly and as quickly as they could. For example, concerns over natural catastrophe exposures, prototype technologies and political risks have held back investment in some solar and offshore wind projects. Insurance can, however, address a range of political, technical, credit and operational challenges that would otherwise deter investment or increase the costs of financing renewable projects.

Insurance in the renewable space has yet to fully meet its potential, in part due to uncertainties over catastrophe exposures and models. Aon’s STG has been working with insurers to assess market opportunities in the renewable space and attract much-needed capacity. However, there is much more that could be done collectively to bring more insurers into this space and begin to fill the growing protection gap.

Helping homeowners adapt to climate extremes

While the renewable energy market has already attracted insurers’ attention and capital, there is also significant growth potential from helping individuals, businesses and governments manage the risks of a more volatile climate. However, when it comes to homogenous lines of business such as homeowners insurance, the industry has yet to fully grapple with climate change.

Property natural catastrophe insurance is an area where the insurance industry can really make a difference. By being proactive, insurers can help insureds reduce exposure, while at the same time ensuring a sustainable flow of premium for the industry.

For example, some properties in California struggle to buy affordable insurance or even cover at any price due to wildfire risk. However, carriers can help homeowners better understand the risks and where to best invest in loss prevention and mitigation.

Insurers are well positioned to guide customers through the transition. We have the knowledge and experience of the risks that are coming our way. We just need to accelerate our efforts, focus on what we are good at as an industry, and be more tenacious.