Accelerating decarbonization and a just energy transition.
The problem.
Climate change is escalating costs throughout the economy. Each fraction of a degree of warming intensifies damages and increases risks of crossing tipping points in the earth’s system with profound negative impacts for human society. To minimize the growing risks, fundamental shifts in our economy are needed, requiring participation from all sectors, including insurance.
The opportunity.
Insurance is an enabler of much economic activity. Through reformed business decisions, it can direct capital toward less carbon-intensive activities and encourage faster adoption of low-emissions practices, helping spur a rapid and just energy transition.
Featured publications.
Leveraging insurance for decarbonization
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Research paper by Carolyn Kousky and Joseph Lockwood. Insurance is an enabler of much economic activity, and through its business decisions it can direct capital toward less carbon intensive activities and encourage faster adoption of low-emissions practices.
Climate tech and insurance
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The Geneva Association's two-part research series explores how insurers can help facilitate the commercialisation of climate technology. The first report examines the climate tech commercialisation landscape and finds that engaging re/insurers from the very early stages of climate tech projects is critical. The second report presents a novel ‘Insurability Readiness Framework’ that can be used to pinpoint the areas within climate technologies that pose the greatest challenges to insurability.
insuring disaster 2024
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"This is ShareAction's third benchmark of the insurance sector. It assess the policies and practices of 65 of the world's largest insurance companies across a range of environmental and social issues."
Explore solutions for decarbonization.
Innovation.
Insurers have five levers to help reduce GHG emissions.
The global insurance sector is increasingly being called upon to help manage the physical risks of climate extremes, a task that is becoming more difficult as those risks rise globally. Insurance is an enabler of much economic activity, and through its business decisions, it can direct capital toward less carbon-intensive activities and encourage faster adoption of low-emissions practices. This article from the Journal of Catastrophe Resilience explores the five levers the insurance sector can use to reduce emissions in the real economy, with varying degrees of impact.
(1) Reducing emissions in their own operations
(2) Investing for the climate
(3) Climate-friendly underwriting
(4) Decarbonizing rebuilding
(5) Supporting sound climate policy
All of these approaches go beyond target-setting and pledges. Many firms have made ambitious pledges and failed to meet them. Insurance for Good is exploring the mechanisms insurers have to actually reduce emissions in the real economy — not just make empty pledges and set unattainable targets.
(1) Reducing emissions in insurer operations.
Insurance firms, like others, can reduce the emissions from their own operations. This can be done through investments in energy efficiency in their offices, procurement of renewable energy, and reducing employee air and car travel.
While all firms can work to decarbonize their operations, for insurers, their direct emissions are small in comparison those in their supply chain: the emissions of their clients and the firms in which they are invested (these are referred to as Scope 3 emissions).
EXAMPLE: Swiss Re put a price on carbon within the firm to help ensure that all decisions were made with consideration of carbon impacts. They are increasing that price over time.
(2) Applying a climate lens to investments.
Insurers are large asset owners. Like other large investors, they could take a climate lens to their portfolios. This could involve excluding investments in firms that emit a high amount of carbon, targeting clean firms, and/or being an active owner to push firms for faster decarbonization approaches.
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The Wall Street Journal recently analyzed insurer investments in fossil fuels, finding while many have cut back, a few firms are still investing heavily.
A couple years ago, both California and New York investigated the investments of insurers in their state and assessed those investments against climate goals. In addition, analysis has been done of west coast insurers.
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Several insurers and reinsurers have made public commitments about making their investments more climate-friendly. Some examples include:
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(3) Climate-friendly underwriting and client engagement.
Term to note: Underwriting is the insurance practice of deciding what to insure and on what terms.
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Insurance is necessary for the deployment and scale of new, clean technologies for the energy transition. Unfortunately, with no loss history and lack of related engineers on staff, insurers may need to charge excessive premiums for these projects or firms. Can knowledge sharing or complementary public-sector risk sharing help?
Read more about how insurers can support clean-tech innovation in this recent EDF post authored by Harvard’s Peter Tufano.
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Some activists have been calling on insurers to refuse to provide coverage to carbon-heavy firms and operations. (Read more from Reclaim Finance on how Lloyds is doing meeting this goal.) Insurers can also make more targeted restrictions. For example, several insurers have refused insurance for new coal operations. Hartford has limited insurance for firms with more than 25% of their revenue from coal or tar sands and Chubb has required evidenced-based plans for elimination of methane emissions.
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Insurance companies can help their clients strategize and accelerate their own decarbonization plans. For example, Chubb is working with its oil and gas clients to lower their methane emissions through an online Methane Resources Hub.
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Net-Zero Underwriting in P&C and the Growth at Stake, by McKinsey & Company
(4) Adopting claims processes that support the energy transition.
Property and casualty (P&C) insurers can use the claims process to support policyholders in rebuilding from a loss in a manner that leads to lower GHG emissions. This could be done through adoption of energy efficiency and renewable energy measures and use of lower-carbon materials. Policyholders may need extra funds, guidance, and assistance to adopt such measures. But with the building sector accounting for roughly a third of greenhouse gas emissions, decarbonized rebuilding is critical.
MORE COMING SOON!
(5) Supporting climate policy.
Insurers are on the frontlines of climate impacts as losses from weather-related extremes increase in frequency and severity. They could be strong supporters of sound climate policy — both to lower emissions and increase resilience.
MORE COMING SOON!
Policy reform.
Policymakers are considering how they can encourage or require greater climate action from the insurance sector…
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A new bill could impose a fee on any company insuring a fossil fuel project in the state.
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"The legislation is sweeping. It would ban insurers from backing new fossil fuel projects and force them to phase out their support for existing ones. At the same time, it would create new protections for New Yorkers already seeing the costs of climate disasters in their monthly home insurance bills."
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Both California and New York have investigated the investments of insurers in their state and assessed those investments against climate goals.
Related research.
F. Nagrawala, K. Springer, S. Hierzig (2024). Insuring Disaster 2024: Ranking 65 of the world’s largest insurers’ approaches to responsible investment and underwriting. ShareAction.
Kousky, C. and J. W. Lockwood (2024). Leveraging Insurance for Decarbonization. Journal of Catastrophe Risk and Resilience, February.
Lamm, T. et al. (2023). Looking Forward: A Guide to Climate Risk Scenario Analysis Design for California’s Insurance Regulator. University of California, Berkeley Center for Law, Energy, and the Environment, April.
PCAF. (2022). Insurance-Associated Emissions. Partnership for Carbon Accounting Financials. November.
University of Cambridge Institute for Sustainability Leadership (2021). Insurers in Paris-aligned climate transition: Practical actions towards new zero underwriting. Cambridge, UK: Cambridge Institute for Sustainability Leadership.