A new report highlights the critical role of insurance in facilitating the global shift towards net-zero emissions, asserting that over $10 trillion in additional insurance coverage will be essential to support the $19 trillion already earmarked for investments in this transition. The study, conducted jointly by insurance broker Howden and Boston Consulting Group, underscores the unprecedented strain this demand will place on the insurance sector.
According to Rowan Douglas, CEO of Howden’s climate team, the report serves as a “wake-up call” regarding the pivotal importance of insurance in enabling the energy transition. He emphasized the broad and intensive pressures the sector will face, noting that the transition will unfold globally and simultaneously at a rapid pace.
The report identifies specific sectors requiring substantial insurance coverage from 2023 to 2030, including energy, road transport, and building infrastructure. This coverage extends to major projects like offshore wind farms, solar installations, and retrofitting existing buildings for energy efficiency.
Insurance providers are already extending their coverage to encompass emerging technologies such as hydrogen-powered vehicles and innovative building materials. However, there remains caution within the industry regarding the increased risks associated with these new technologies, which lack historical data on potential losses.
Rowan Douglas pointed out that insurers may prioritize sectors with better-understood risks and profitability amid potential capacity shortages. Moreover, insurers are collaborating closely with green energy initiatives to mitigate risks associated with new technologies and projects.
Despite the growing focus on green projects, the report suggests that insurance support for traditional fossil fuel projects is unlikely to decline significantly by the end of the decade. Raphael Troitzsch, managing director at BCG, emphasized that while investments in green projects may increase, they are unlikely to offset insurance needs in the fossil fuel sector in the short term.
In addition to technological risks, the report also highlights the mounting pressure on insurers to provide coverage against natural disasters, further straining the sector’s capacity.
Overall, the report underscores the pivotal role of insurance in supporting the energy transition while emphasizing the challenges and complexities ahead for the industry in meeting these new demands.
