The pathway to limiting global warming to 1.5°C by 2050 has narrowed even further over the past 17 months, according to the second edition of the Lloyd's Market Association's (LMA) Underwriting the Transition report, produced in partnership with KPMG and released on March 3, 2026.
Current government policies now point towards a temperature rise of approximately 3°C by 2050, while stated government commitments suggest a more modest, but still well above target, 2.5°C. The first edition of the research, published in October 2024, had already flagged the path to 1.5°C as narrow; the latest analysis shows that gap narrowing further still.
Paul Davenport (pictured), Finance and Risk Director at the LMA, said the shift reflects rising global energy demand colliding with a slower-than-expected pivot away from fossil fuels.
"The things that are driving that are really the demand for energy continues to increase," Davenport said. "There's the population growth, pursuit of GDP growth in most economic policies, as well as the data centre AI explosion, and that as a contributor to the demand for electricity."
Global data centre electricity consumption is projected to more than double to around 945 terawatt-hours by 2030, with the United States, Europe and China, which together account for 85% of current load, driving most of that growth. The International Energy Agency's World Energy Outlook 2025 Current Policies Scenario projects that oil demand will not peak before 2050 and could reach 113 million barrels per day, requiring new upstream investment.
Davenport noted that renewable capacity continues to expand even as fossil fuel demand persists. "There is still outstanding growth in renewable energy sources, and solar – [with] China leading the way on that, and wind," he said.
"So there are positive developments in the growth in renewable energy sources. But those are the things that are really driving what the pathway looks like now."
The changing transition outlook is also reshaping insurers' priorities. Davenport said a loosening of regulatory pressure in some jurisdictions has enabled firms to spend less time on transition-related compliance and more time developing products for emerging risks, even as the Prudential Regulation Authority (PRA) moves to require climate risk, including climate litigation risk, to be embedded into governance and risk appetite ahead of its June 2026 deadline.
Davenport said that a pivot away from regulatory pressure has enabled underwriters to focus on product development rather than compliance alone. "We've got less pressure from regulators, meeting compliance and thinking about standards coming out from regulators," he said. "Right now, let's take the opportunity to think about the products, how we support the underwriters in the things that are coming through as a result of transition."
That shift has translated into tangible changes in underwriting. Davenport pointed to solar farms now fitted with automatic folding mechanisms that tilt panels vertically ahead of hailstorms, reducing exposed surface area, alongside stricter standards for battery energy storage systems following concerns around thermal runaway fires.
"We will no longer put batteries of this nature in buildings," he said, explaining that installations are increasingly separated and designed to limit the spread of fire should one occur.
Wildfire defence has become a particular area of focus. "One of the Lloyd's syndicates is particularly focused on wildfire defence systems," Davenport said. "It can be as simple as just clearing the vegetation from around a property... you can see from the wildfires in Los Angeles last year that certain properties survived, and there were, by and large, reasons for that, because there were mitigation and steps taken."
Major transition assets, particularly data centres and other large infrastructure projects, increasingly require coverage limits beyond what the Lloyd's market can provide alone.
"The Lloyd's market can't just say we'll do all the data centres," he said. "The solution to that has to be – it's Lloyd's, it's the company, it's the reinsurance market, it's the alternative capital, the cat bond and ILS market. All of those things have to be sharing the risk."
He suggested Lloyd's could explore lifting existing limits on individual syndicate writing capacity, provided gross lines are appropriately supported by reinsurance.
Without insurance, Davenport argued, many transition-linked construction and infrastructure projects cannot proceed regardless of available funding, underlining the sector's role in enabling the energy transition.
Davenport said maintaining underwriting discipline would be critical as market conditions soften. "It needs to preserve and retain its capital and financial strength through the next few years. That's certainly the message that Lloyd's is giving to the market, and we'd absolutely echo that."
