Additional insurance coverage is needed for over half of the $19 trillion that has already been committed to financing the climate transition until 2030, a new study published by international insurance intermediary group Howden and Boston Consulting Group found.
In the report, which looked into the role of insurance in mobilising the climate transition, it was found that firms needed to engage the insurance sector in their climate risk management planning at an early stage. This was because it could help them secure enough supply of capacity and long-term coverage, which could be beneficial in unlocking climate finance in the way they would require.
Meanwhile, the study also found that insurance premiums for climate resilience and natural catastrophe protection will rise by 50% by 2030, which may reach $200-250 billion due to increased annual losses that are caused by several factors such as climate events, accelerated exposures growth, climate risk disclosures, and governments transferring risk to private markets.
With such factors possibly causing pressure on insurance systems, markets may be unable to keep up with the growing demand. Because of this, the study encouraged clients to shift to a long-term view of risk as it could lead to multi-year coverage, public-private insurance solutions, and the development of forward curves for risk based on forward-looking analytics through a collaboration with insurers.
Such an approach will enhance the bankability and insurability of new investments as well as support firms in achieving the transition strategy they have set and improving their climate resilience.
“The insurance market must lead the de-risking dialogue to ensure the insurability and bankability of climate action,” said managing director and partner at Boston Consulting Group Lorenzo Fantini.
With the report calling on firms to act on the pressing matter, Howden has collaborated with the UN Climate Change High-Level Champions in order to build an Enabling Climate Insurance Breakthrough through working with partners. It will support the collaboration between insurers and clients in order to make them better understand risks and work with industries to lessen the risks associated with projects, mobilise new insurance capacity, and support investments to lessen carbon.
“Managing risk is one of the biggest barriers to a just and resilient transition. Insurance can provide the certainty, clarity and security to achieve the radical transformation needed and will be instrumental across sectors and industries globally to shape a net zero, fair future for all,” said UN Climate Change High-Level Champion for COP29 Nigar Arapadarai.
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