Howden and BCG research identifies insurance as critical to mobilising $10 trillion of committed climate transition investment

London, 24 June 2024 – Howden and Boston Consulting Group (BCG), have jointly published new research on the role of insurance in mobilising the climate transition. According to the findings, presented at the De-Risking Summit at Mansion House in London, over half of the $19 trillion already committed to financing the climate transition through to 2030, will require additional insurance coverage. The acceleration in demand means that corporates should engage the insurance industry from an early stage in their climate risk management planning to secure adequate supply of capacity and long-term coverage. This could be a game changer in unlocking climate finance at the speed and scale required.

In parallel, insurance premiums for climate resilience and natural catastrophe protection are set to increase by 50% by 2030, reaching $200-250 billion2 as a result of increased annual losses caused by climate events, accelerated growth in exposures, climate risk disclosures and governments transferring risk to private markets. 

These stresses will place unprecedented structural pressure on insurance systems across public, private and mutual markets and there is no guarantee that the market will meet this demand.

Whilst insurance promises to be a great enabler to unlocking the transition and adapting economies to a new climate era, it will require a paradigm shift in how risk management is prioritised if climate finance is to be deployed and businesses are to secure their futures.

From annual procurement to a long-term partnership

To ensure access to insurance protection, the paper calls on clients to move away from an annual procurement exercise to a long-term view of risk, which in collaboration with insurers, could lead to multi-year coverage, public-private insurance solutions and forward-looking analytics as a basis for developing forward curves for risk. This approach will enhance the bankability and insurability of new investments and support businesses to achieve their transition strategy and greater climate resilience.

On the supply side, the market needs to innovate to meet the growing demands of the climate transition to ensure insurance remains accessible and affordable across sectors and regions. Insurers should also assume a central role in the de-risking discussion within the finance community to strengthen the global response to climate change. 

Rowan Douglas CBE, CEO, Climate Risk and Resilience, Howden, said: "Insurance is the financial bedrock needed to de-risk investments and attract the additional capital necessary to mobilise the climate transition. Astute companies are now elevating future insurability to boardroom level discussions because it will be essential to maintain access to capital. The key is developing long-term partnerships with insurers to build shared expertise and trust and optimise future access to scarce underwriting capacity. The alternative is an invitation to climate valuation risk.” 

Lorenzo Fantini, Managing Director and Partner, Boston Consulting Group, said: “Achieving net zero and climate resilience with adaptation strategies is an unprecedented challenge for all economies. Without sufficient insurance to de-risk markets, a smooth transition will be impossible. The insurance market must lead the de-risking dialogue to ensure the insurability and bankability of climate action.”

An enabling climate insurance breakthrough 

In response to the report’s call to action, Howden announces a collaboration with the UN Climate Change High-Level Champions3 to work with partners to build an Enabling Climate Insurance Breakthrough. Finding that insurance could expedite delivery of roughly half of the priorities outlined in the 2030 Climate Solutions4, this new Breakthrough will support insurer-client collaboration to better understand risks and work alongside key industries to de-risk projects, mobilise new insurance capacity and support low carbon investments.

Nigar Arapadarai, UN Climate Change High-Level Champion for COP29 added: “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.”