The sustainable energy industry has called on insurers and reinsurers to collaborate as the global decarbonization movement accelerates in the coming decades.
“I can’t imagine a global decarbonization effort that succeeds without an immense role and immense function across the insurance space,” said Tyson White, director of Breakthrough Energy.
Founded by Bill Gates in 2015, Breakthrough Energy is a group of organizations aiming to accelerate innovation in sustainable energy and other technologies to reduce greenhouse gas emissions.
“There’s no question about the initiatives being driven across the brokers, insurance companies, reinsurance companies that are represented in this room and elsewhere,” White said, addressing insurance executives during a panel session on Wednesday (November 29).
Leaders of the world’s biggest insurers and reinsurers had gathered for the 50th anniversary of the Geneva Association, an international non-profit think tank dedicated to insurance research.
“This is about collaboration, and each party coming to the table, understanding their unique superpower to solve this challenge, and being very candid and honest about what they can and cannot do,” said White.
Also speaking on the panel, Joachim Meister, group senior vice president of power & new energy at Worley, stressed the challenges that innovators face in acquiring insurance.
Worley is an American and Australian firm that provides engineering, procurement, and construction expertise to the upstream, midstream, chemicals, power, and mining and minerals sectors.
“Financial backers need insurance to have the guarantees they are looking for in these projects,” Meister said.
“When we look at the energy transition projects, it’s not as easy anymore because you’re dealing with new technologies, scale-ups of technologies, or new combinations of existing technologies. There’s limited operating experience to base decision-making and risk allocation on, making it much harder in that space going forward.
“That’s where the insurance industry needs to come in, to get a much closer link with all the stakeholders involved, and to achieve the right risk allocation that needs to happen to make these projects feasible and, ultimately, bankable in that space.”
White echoed the urgent call for the insurance industry to help unlock risk transfer and mitigation solutions in the renewable energy space.
“We’re asking you to be unapologetically commercial in your aspirations and your mandates, and to see the opportunity with us and allow us to help execute an intervention that can align the different pieces of the puzzle required to unlock your capital and unlock other capital providers’ efforts,” he said.
Meister added that the earlier insurance can get involved in the process, the more likely companies can fast-track their technology development, speeding up the global carbon transition.
For instance, hydrogen energy investment has been scaled up significantly. In 2022, nearly 700 large-scale hydrogen project proposals were put forward, worth around $240 billion in direct investment through 2030 or a 50% investment increase since 2021, according to a joint report by the Hydrogen Council and McKinsey.
“When you look at the large hydrogen hubs, for example, in the US and the Middle East, [the scale of investment] is in a different dimension. The risks are becoming very different in that space; therefore, the risk allocation and management becomes much more important going forward,” Meister said.
“Insurance has a critical role to play because the earlier we can get insurance involved in this process, the faster they can get through that journey, from early demonstration to commercial plants, and will help the energy transition and what we need to achieve to get to that zero.”
The Geneva Association panel comes on the eve of COP28, the 2023 United Nations climate change conference, in Dubai.
Earlier, Clyde & Co’s global resilience and climate change risk practice leader, Nigel Brook, called on the insurance industry to seize opportunities in the energy transition even as extreme weather events and other risks to organizations loomed.
“There’s been an underappreciated role of insurance, but I think it’s going to get more attention now,” Brook told Insurance Business.
“There’s an imperative for these technologies to be scaled up, and if investors and lenders sit on the sidelines saying it’s just too risky to be on our appetite, it’ll slow down the transition.”
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