Insurers are increasingly turning to science-based underwriting and risk modeling to navigate the growing climate risks and capitalize on opportunities in the cleantech sector, according to Cleantech Group. This new approach, which prioritizes engineering and scientific data over traditional historical information, reflects the sector’s focus on adapting to climate change while fostering cleantech innovations.
As early adopters gain a competitive advantage, this shift introduces new business risks, leading some insurers to rely on external expertise via managing general agents (MGAs) or third-party services.
Holly Stower, Group Lead for Resources & Environment at Cleantech Group, pointed out that insurtechs experienced a 25% compound annual growth rate (CAGR) in 2023, outpacing the broader insurance sector’s growth of 7.5%. Stower emphasized that insurers are crucial to scaling cleantech solutions but must significantly invest in specialized knowledge and adopt a more ambitious approach to meet emerging challenges.
Insurers are expanding their role in cleantech through the development of innovative insurance products, including technology performance insurance and parametric insurance. These new risk-transfer solutions are designed to support the growing sector, while insurers also back innovation through venture capital and accelerator programs.
Leading players in the cleantech insurance market include Chubb, Munich Re, AXA, and Howden.
Carbon credit insurance has emerged as a key opportunity, driven by the substantial value of voluntary and compliance carbon markets, which are valued at $40 billion and $1.88 trillion, respectively. Additionally, parametric insurance is gaining popularity as a tool for managing the rising risks associated with climate change.
The insurance protection gap is widening, with a significant discrepancy between economic losses and insured losses. From Q1 to Q3 2024, the gap stood at 60%, as economic losses reached $258 billion compared to $102 billion in insured losses. The 2024 Los Angeles wildfires, for instance, could result in damages of up to $250 billion, equivalent to 4% of California’s GDP.
Unlike traditional insurance policies, parametric insurance leverages advanced climate data models and real-time sensor validation to provide quicker payouts, making it a valuable tool in addressing the growing climate risks faced by industries worldwide.
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