Climate challenge will place unprecedented pressure on insurance sector – Howden

Broker Howden has warned that insurance premiums for climate resilience and natural catastrophe protection are set to increase by 50% by 2030 as a result of increased annual losses from climate-related events.

This figure could reach as high as £157-197bn ($200-250bn), with an accelerated growth in exposures, climate risk disclosures and governments transferring risk to private markets also having an impact.

These figures come from new research published yesterday (24 June 2024) by a partnership between Howden and Boston Consulting Group on the role of insurance in mobilising the climate transition.

The study said that as premiums increase, so will demand for insurance protection – over £15tn ($19tn) of the funds globally committed to financing the climate transition through to 2030 will require additional insurance coverage, the research added. 

This increase in demand will necessitate that corporates should engage the insurance industry from an early stage in their climate risk management planning to secure adequate supply of capacity and long-term coverage.

Howden added that this could be a “game changer” in unlocking climate finance at the speed and scale required.

Financial bedrock

Rowan Douglas, Howden’s chief executive for climate risk and resilience, explained: “Insurance is the financial bedrock needed to derisk investments and attract the additional capital necessary to mobilise the climate transition.

“Astute companies are now elevating future insurability to boardroom level discussions because it will be essential to maintain access to capital.

”The key is developing long-term partnerships with insurers to build shared expertise and trust and optimise future access to scarce underwriting capacity. The alternative is an invitation to climate valuation risk.”

Howden and Boston Consulting’s research warned that the stresses faced by companies and governments across the world were likely to place unprecedented structural pressure on insurance systems across public, private and mutual markets – and added that there was no guarantee the market would meet this demand.

“Whilst insurance promises to be a great enabler to unlocking the transition and adapting economies to a new climate era, it will require a paradigm shift in how risk management is prioritised if climate finance is to be deployed and businesses are to secure their futures,” it stated.

Lorenzo Fantini, managing director and partner at Boston Consulting, added: “Achieving net zero and climate resilience with adaptation strategies is an unprecedented challenge for all economies. Without sufficient insurance to derisk markets, a smooth transition will be impossible.

“The insurance market must lead the derisking dialogue to ensure the insurability and bankability of climate action.”