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Insurance cover will be crucial for more than half of the $19tn of investment already committed to financing the transition to net zero, putting “unprecedented structural pressures” on the sector, according to a new report.
Insurance broker Howden and Boston Consulting Group have concluded that at least $10tn of new cover will be required for the energy, road transport and building sectors between 2023 and 2030, including for huge infrastructure projects such as offshore wind, solar farms, as well as the insulation of existing housing stock.
Rowan Douglas, chief executive of Howden’s climate team, said the report was meant as a “wake-up call” on the vital role of insurance coverage in the energy transition and the challenges this presented. The stresses on the market would be “ubiquitous”, he added.
“We are going to be having this energy transition globally, at pace and scale, all at the same time.”
Executives and policymakers have increasingly focused on the enabling role of insurance in building the infrastructure and technology required for the energy transition, and questioned whether there is sufficient capacity in the industry to underwrite these sprawling and complex risks.
Insurers already provide extra cover in a range of areas from hydrogen-powered and electric vehicles to offshore wind and hybrid building materials, and plan to expand into newer technologies. But there is also a pressure on insurance firms to be cautious about how much new risk they take in areas where there is a lack of historical data on losses.
“The new energy technologies are pressing the envelope in terms of innovation, and therefore riskiness, and [so] are harder to underwrite,” Rowan said. “If there is going to be a shortage of capacity, it is likely that capacity will flow to areas that are more understood and more profitable.”
Insurers are also working closely with green energy groups to reduce the risks of new technologies and projects, such as adjusting the position of solar panels when bad weather is coming after some recent episodes of heavy hailstone damage.
The report’s authors also said they did not expect a big fall in the amount of insurance provided on fossil fuel projects — freeing up capacity to insure green projects — by the end of the decade.
“While one might expect an offset of new investments to occur versus traditional, that will not happen in the short-term,” said Raphael Troitzsch, a managing director at BCG. The need to provide more cover against natural disasters will compound pressure on the sector, the report said.
