Climate-related insurance – which markets are ready for explosive growth?

Explosive growth in renewable energy industries such as offshore wind and hydropower are driving significant demand for climate-related insurance solutions.

Data from Bain & Company shows premium revenue growth for commercial climate insurance solutions is set to more than double from around €25 billion (US$27.6 billion) in 2022 to €60 billion by 2030. 

Solutions related to renewable energy, biodiversity, environmental liability, carbon offset, new infrastructure, mobility, and advisory services will all grow significantly, according to the global consulting firm.

Some of these technologies are already familiar territory for many insurers. At the same time, newer technologies are emerging, promising growth opportunities but also substantial risks.

Three categories of climate-related insurance markets

Speaking to Insurance Business, Dr. Christian Graf, who leads the sustainability & responsibility financial services practice across EMEA for Bain & Company, noted three main categories of climate-related markets.

First, renewables like photovoltaic, offshore wind, and hydropower. These are already a well-established market for insurance companies and are currently the largest in climate solutions. “Despite its maturity, we expect it to grow significantly—about 6-10% annually,” said Graf.

Second, nascent technologies particularly around carbon capture, utilisation, and storage (CCUS), are developing rapidly. “These technologies aren’t yet at scale, so the market is still small. However, by 2030, we expect this market to grow by more than 50% annually and become significant in five to six years,” said Graf.

Finally, Bain & Company noted increasing demand for advisory services related to physical risks and climate solutions. Graf noted: “While not directly tied to gross premiums, this is another segment that will drive growth going forward.”

How are carriers approaching climate insurance?

Renewables are proving to be a crucial focus for insurers seeking to meet climate goals and align their portfolios with cleaner energy sources. However, insurers face a tricky balancing act: they must decide when and how to enter these markets without exposing themselves to unknown risks.

Insurers are taking varied approaches to these nascent technologies. According to Graf, there are broadly three types of players in this space.

The first group is taking a cautious approach, sticking to well-understood risks. “They purposely take the strategic decision as of today to focus on the risks that they know,” Graf said.

These companies are also willing to wait a few more years to see how technologies like CCUS evolve before they commit to insuring their risks.

On the other hand, the second group of insurers is more aggressive, seeing an advantage in being early movers. These companies want to familiarise themselves with emerging risks and technologies while competitors wait on the sidelines.

“They try to be the first movers to learn and gather a lot of data,” said Graf. Their rationale is that by entering the market early, they can gain a critical edge, acquiring knowledge and data that will help them scale more easily in the future.

However, early entry comes with downsides. Insurers venturing into these new areas must be careful not to let optimism about growth cloud their judgement. To price their policies effectively, insurers also need a deep understanding of the underlying exposures.

“It also involves investments on the side of the insurers,” Graf noted. “You have to understand the technology behind carbon capture. How will it scale over time?”

For the cautious players, balancing profitability in a rapidly evolving sector like climate insurance will prove challenging. In established markets, competition is already fierce. For insurers, this heightened competition can squeeze profit margins, making it harder to maintain strong financial performance.

What does growth in the climate insurance space mean for brokers?

Beyond underwriting and risk management, advisory services are also emerging as a significant area of growth.

Advisory services aren’t just a growth opportunity for insurers themselves—brokers are also well-positioned to tap into this market. Graf noted that both insurers and brokers are trying to capture a slice of the advisory pie, with many insurers making heavy investments to scale their offerings.

“A lot of players are trying to break into this advisory space, and I see insurance companies investing heavily in scaling these services across the industry, from carriers to brokers and MGAs,” said Graf.

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