Sustainable Insurer: Five key trends in 2024…

The Insurer’s sustainability editor Rebecca Delaney highlights five key trends to emerge this year…

1. Carbon insurance market growth accelerates

A standout theme in 2024 is the acceleration in the growth of carbon insurance solutions, which function as a de facto stamp of approval to boost the integrity and value of the carbon credit space.

Brokers that have embraced the carbon insurance market include Aon, which introduced a product covering the risk of reservoir integrity in carbon capture and storage projects, and Marsh, which launched a Canopius-backed solution for the transportation and storage of carbon dioxide.

In June, Howden placed a warranty and indemnity policy for reforestation credits sold by Mere Plantations for a project in Ghana, while Tokio Marine Kiln and Kita introduced political risk cover for carbon credit projects.

These developments underline the role of insurance in boosting confidence in the voluntary carbon market, paving the way for market growth in the coming years.

2. Social impact through building resilience

Greater focus on a “just transition” – a shift to a lower-carbon economy that addresses the disproportionate physical and economic impacts of climate change on vulnerable socioeconomic groups – has emphasised the role of risk transfer mechanisms in building financial and physical resilience among climate-vulnerable communities.

During London Climate Week, Howden called on the industry to facilitate investment capital into climate-vulnerable small island developing states to enable resilient mitigation and adaptation strategies.

As well as providing indemnity, sovereign mechanisms and parametric insurance products can provide a multitude of advantages to smallholder farmers and local communities, such as peace-of-mind and greater trust in the insurance sector.

Elsewhere, African Risk Capacity was selected to implement a new World Bank programme for rapid disaster risk transfer, while in April Axa, Scor and Marsh McLennan joined the Insurance Development Forum’s disaster risk reduction taskforce.

3. Climate reporting requirements

This year has shown corporates that, from a regulatory reporting perspective, simply quantifying carbon emissions does not provide a comprehensive view of climate risk. Sustainability and environmental issues are now recognised as a key corporate responsibility rather than just a tick-box disclosure.

As an indication of the increasing regulatory demands around sustainability, this year KPMG launched a new hub to help firms navigate obligations around climate in corporate reporting.

This publication has also reported that, under the EU’s Corporate Sustainability Due Diligence Directive, insurers may face increased D&O and E&O exposures owing to the widened scope for redress and enforcement over the adverse impacts of companies’ activities on human rights and environmental protection.

In addition, final guidance by the Taskforce on Nature-related Financial Disclosures in July recommended that (re)insurers disclose their exposure to sectors with material nature-related risks and to sensitive locations, either as a percentage of GWP or as total sums insured.

4. Nature-based solutions

Staying on the theme of nature, 2024 to date has seen greater appreciation of the importance of a nature-positive economy. This means integrating nature in mainstream financial decision-making to mitigate nature-related risks – such as illegal/unregulated fishing, environmental pollution liability and plastic pollution – while also exploring the financing and insurance of nature-based solutions.

Earlier this year ClimateWise piloted nature-based insurance and debt solutions with Howden and MS Amlin to demonstrate the financial opportunities for marine ecosystems in the Philippines and Ecuador, respectively.

And in June the UN Principles for Sustainable Insurance convened the first meeting of its nature-positive working group. Comprising 40 insurers, reinsurers and brokers, the group is dedicated to advancing insurance-relevant approaches and tailored guidance on nature.

Sustainable Insurer also explored how new biodiversity net gain requirements in the UK may see insurers face unexpected exposures during rebuilds under property damage policies, as well as introducing actuarial challenges around underwriting and pricing sites based on biodiversity value.

5. Acceleration of insuring the transition

Lloyd’s Q2 market message unveiled a new TCX transition class, which allows syndicates to deploy an additional 5 percent of GWP on sustainability-focused products without having to compete for capacity.

Following this announcement, renewable energy insurance specialist GCube launched a new Lloyd’s consortium to provide up to $100mn of capacity to any single battery energy storage system project.

Elsewhere, Ariel Green expanded its clean energy technology consortium to $150mn aggregate per risk, while in July Zurich and Aon launched an oversubscribed multi-line hydrogen insurance facility.

New Energy Risk and Westfield Syndicate 1200 also launched a new Lloyd’s lineslip dedicated to providing technology performance insurance, including fuel cells, hydrogen, low-carbon fuels and carbon capture.

Outside the Lloyd’s market, in April the UN Environmental Programme unveiled the Forum for Insurance Transition to Net Zero, a new multi-stakeholder body that replaces the discontinued Net-Zero Insurance Alliance.