Insurers are facing the consequences of their decisions over the last half-century. Over the past month, the unfolding insurance crisis has captured headlines. The New York Times detailed how extreme weather events are stretching the insurance sector to its limits, testing the boundaries of what can and cannot be insured. Concurrently, The Guardian highlighted IPCC scientists’ grave concerns about maintaining global heating below the critical 1.5°C threshold. At the same time, there is noticeable hesitancy within the industry to insure clean energy projects, despite their critical role in mitigating future climate risks. This reluctance not only affects the industry but also poses a broader threat to global climate change mitigation efforts. Without adequate insurance, financing these essential projects becomes increasingly challenging, hampering necessary advancements in clean energy.
The industry is now at a crossroads with an opportunity to play a major role in solving the climate crisis by helping to facilitate the clean energy transition that is equitable for communities, families, and workers.
First, the insurance industry must recognize that continuing to insure fossil fuels is a losing proposition. The industry already cites climate change as a reason for non-renewals and withdrawals. It’s time to connect the dots and acknowledge that the pollution from the fossil fuel value chain — extraction, processing, transportation, and combustion — is responsible for the cited climate change.
Existing data also makes a compelling case. In 2022, while gross direct premiums from the fossil fuel industry were estimated at $21.25 billion, economic losses from natural disasters totaled a staggering $275 billion with insured losses at $125 billion. This stark contrast underscores the potential net loss from continuing to insure fossil fuels when factoring in the payouts for climate-related damages. Considering that several sources estimated the value of the global homeowner insurance market at over $200 billion in 2023, prioritizing this market over fossil fuels is not just sensible but critical for maintaining industry stability.
Much of the lost revenue from ending fossil fuel underwriting could be recouped directly from insuring renewable energy. Research from McKinsey shows that the insurance market for new energy infrastructure will grow to around $15 billion in 2030. There’s also ample data showing investment in climate resilience and abatement will save trillions of dollars in post-disaster costs. Insurers stand to benefit twofold from underwriting these projects, not only by tapping into new revenue streams but also by facing fewer catastrophic payouts.
The insurance industry has a golden opportunity to swing the momentum towards achieving 1.5°C — a move beneficial for families, the planet, and the insurance industry itself. Embracing this transition is good for business and essential for building a resilient and sustainable future.
