Re/insurers are essential to rolling out the climate technology needed for industries to decarbonise, according to a recent report by The Geneva Association, the global association of insurance companies.
In a race to meet global climate targets, industries around the world are under increasing pressure to adopt new technologies and processes to expedite their decarbonisation efforts.
To cap global warming at 1.5°C, heavy industries like steel, aluminium and aviation, responsible for over 30% of global carbon emissions, need to deploy climate technologies on a wide scale.
The Geneva Association report, titled Bringing Climate Tech to Market: The powerful role of insurance – released in a two-part series -, recognises the need for innovative approaches to assessing technology market readiness and financing, underscoring the important role of insurers.
A survey of insurance C-level executives by the Association has highlighted that early engagement of re/insurers in climate tech projects is critical to improving project risk assessment and securing financing.
The report noted that, even though there has been significant progress in developing innovative climate tech, most projects remain in pre-commercialisation stages. Reasons for this include huge funding gaps, challenges with scaling and scarcity of data on the risks.
Huge amounts of funding need to be deployed annually towards financing climate tech innovation and demonstration. But financing pilot projects from the demonstration and early deployment stages, many potentially viable technologies die, is capital and risk intensive, analysts highlight.
Closing this gap, the report stated, will require massive amounts of private capital, and warned that relying solely on public capital will not be sufficient.
Additionally, demonstrating and deploying emerging technologies at scale will also require new ways of doing business as well as changes to traditional commercialisation pathways, according to analysts.
Strong cross-sectoral collaboration will be needed to assess and manage risks from very early phases of projects to attract investors, expedite execution and achieve scale.
Engaging re/insurers from earlier stages can play a key role in helping to accelerate the deployment of climate tech through the provision of risk engineering services.
At the industry level, this would enhance data sharing and allow re/insurers to increase their knowledge in this space. They could also help with the identification of tech-specific insurance needs for product innovation; and expedite the development of risk management standards, guidelines and codes of practice, among other benefits.
At the project level, analysts added, very early engagement of re/insurers would ensure that risks are considered, assessed and managed more holistically to enhance the project’s insurability and potentially shorten the due diligence period for obtaining insurance.
The Geneva Association has also put forward an innovative Insurability Readiness Framework (IRF), that can be used to pinpoint the areas within climate technologies that pose the greatest challenges to insurability.
The framework is applied to two technologies – green hydrogen and carbon management – to demonstrate its use.
Jad Ariss, Managing Director of The Geneva Association, commented: “The adoption of climate technologies requires a collaborative effort from industries, insurers, policymakers and others. Insurers are essential for securing financing and managing project risks.
“By addressing funding gaps and leveraging insurance solutions, insurers can accelerate the deployment of climate technologies and work towards achieving global climate targets.”
Maryam Golnaraghi, Director Climate Change & Environment at The Geneva Association and lead author of the report, said: “Our Insurability Readiness Framework (IRF), developed in collaboration with a range of partners across sectors, categorises risks into seven relevant areas, aiding stakeholders in framing risks and facilitating dialogue with insurers.
“By identifying risks for which insurability is challenging, the IRF will help reveal when alternative interventions, like public-private partnerships, are required to bring projects to market.”
