Sustainability and Insurance: June Roundup
July 4, 2024
Welcome to our monthly sustainability roundup, keeping you up to date on the insurance industry’s most significant sustainability-related news. June’s topic: New insurance solutions supporting climate transition
Read our summary and analysis below.
Analysis
New insurance solutions supporting climate transition
Questions of finance loomed over the international climate negotiations earlier this month. Global climate diplomats met in Bonn to discuss reducing emissions and responding to growing risks from climate hazards. As reported by Carbon Brief, discussions ranging from adaptation to carbon markets were hindered by financial disputes.
In our view, insurance is integral to the financial flows and risk management strategies that will help facilitate climate transition. From replacing fossil fuels to the voluntary carbon market, insurance helps build trust and investor confidence. As a result, we turn our attention this month to the new insurance solutions supporting climate transition.
We have seen a wealth of new solutions recently, ranging from new insurance products to facilities through which to provide new forms of coverage. On the products front, we are seeing continued growth of insurance for the voluntary carbon market. Howden have placed their first carbon credit warranty and indemnity (W&I) policy to insure a sale of carbon credits backed by a reafforestation project in Ghana. Similarly, carbon insurer Oka have announced a new product to protect buyers and sellers of carbon credits against Corresponding Adjustment failure. These examples reflect the continued take-off of the voluntary carbon market, as we argued in our sustainability roundup last month.
Climate transition presents new and complex risks, and insurers are responding accordingly. For example, Zurich and Aon announced that they are developing a new facility to offer integrated policies for hydrogen projects. From our perspective, reducing global emissions requires comprehensive insurance coverage for large-scale clean energy projects, especially those using emerging technologies like carbon capture, utilisation and storage.
Alongside new products, we are seeing the development of new risk management solutions responding to climate-driven uncertainty. For instance, WTW have launched Climate Quantified: a tool which quantifies financial impacts of climate change. To secure the necessary capacity and long-term coverage to manage to these financial impacts, insurers must be engaged early. Insurers and brokers claim to offer tailored solutions for clients driving the climate transition forwards, however there is still a long way to go and industry leaders will have to take some leaps of faith.
It is our view that carriers need to determine their strategic position in relation to these emerging product types and solutions to avoid being left behind. Looking at the sector as a whole, the breadth and depth of new insurance solutions offers reasons to be hopeful about climate transition. We are finally starting to see the gap close between what clients need and what insurance solutions can offer.
Summary
New insurance solutions supporting climate transition
Carbon insurer Oka introduces solution for compliance market (Life Insurance International)
Oka, an insurer focused on carbon credits, have announced a new product called Corresponding Adjustment Protect. It offers coverage for buyers and sellers of carbon credits to protect against Corresponding Adjustment failure. Under Article 6 of the Paris Agreement, nations can transfer carbon credits between them to help meet climate commitments. This requires Corresponding Adjustment: an accounting mechanism to ensure that credits are not double counted in international transfers. Oka’s new product would provide financial compensation to the credit holder in the case of a host country failing to make necessary adjustments, boosting confidence in carbon credits markets.
Zurich and Aon team up for new insurance facility (Insurance Times)
A new facility providing insurance for clean energy projects is to be launched by Zurich and Aon as the lead insurer and exclusive broker. The facility will offer global coverage through a single integrated policy for both blue and green hydrogen projects with capital expenditures up to $250m (£197m). Hydrogen projects present complex risks, with coverage to be provided across construction, startup delays, operations, business interruption, marine cargo limits, third-party liability, and even carbon capture, utilisation and storage (CCUS) technologies. Zurich and Aon have been researching customer needs for the past two years and this facility will help respond to the need to accelerate the development of clean hydrogen projects.
Howden places first carbon credit warranty and indemnity (W&I) policy (Insurance Journal)
Howden has announced the placement of its first warranty and indemnity (W&I) carbon credits policy. The policy in question insures the sale of carbon credits for a reafforestation project managed by Mere Plantations, a UK-based company operating a teak planation in Ghana. W&I insurance policies for carbon credits will significantly increase their integrity and value by demonstrating to buyers that the credits have met high standards of environmental, social and financial diligence. The use of insurance to guarantee the credibility of carbon credits will continue to drive the evolution of the voluntary carbon market.
WTW introduces Climate Quantified (Insurance Business)
WTW have launched Climate Quantified: a new online tool focused on quantifying the financial impact of climate change. The tool can measure the financial impact of transition risk, quantify business interruption and exposure in the present and under future scenarios, and has been designed to account for a changing regulatory landscape. WTW’s ambition is for the tool to help clients anticipate and respond to financial risks resulting from climate-drive uncertainty.
Insurance critical in mobilising $10 trillion climate transition investments (Insurance Business)
Insurance will be critical in mobilising the climate transition. A new study published by Howden and the Boston Consulting Group reported that additional insurance coverage will be needed for more than half of the $19 trillion already committed to climate transition finance before 2030. The report argues that insurers need to be engaged early in the planning process for climate risk management to secure sufficient capacity and long-term coverage. This long-term view of risk will help improve the insurability of new investments for the climate transition.
Partnerships and acquisitions
MSCI and Moody’s partner to enhance ESG and sustainability solutions (Reinsurance News)
Research provider MSCI and global ratings agency Moody’s Corporation have partnered to improve transparency in ESG and sustainability more broadly. Both sides will benefit from the partnership; Moody’s will use MSCI’s sustainability content to enhance its existing ESG data, while MSCI will use risk assessment data from Moody’s Orbis database to expand its ESG provisions for private companies.
Markel Group to acquire majority interest in Valor (Reinsurance News)
In a move to further diversify its portfolio, Markel Group Inc have entered a definitive agreement to acquire a majority stake in Valor Environmental. Valor is an environmental services company founded in 2003, providing erosion control and related services to site developers across the United States. The transaction is expected to close by the third quarter of this year, subject to customary closing conditions.
NER and Westfield Syndicate launch Lloyd’s lineslip for green tech performance (Sustainable Insurer – subscription required)
Specialist MGU New Energy Risk (NER) have started a new lineslip in Lloyd’s with specialty provider Westfield Syndicate 1200. It will focus exclusively on insurance products to support technology for the energy transition, in areas such as hydrogen or carbon capture and storage. NER has already enabled more than $4bn of capital deployments since 2013 and this lineslip will provide further capacity.
About the author
Anna Gardner is a Consultant at Oxbow Partners who has worked on strategic engagements. She recently supported the design and implementation of a follow-only strategy for a global specialty insurer and writes about sustainability for Oxbow Partners’ publications. Anna has a particular specialism in carbon credits, having previously advised a provider of high-quality carbon credits on their communications strategy and led a delegation to the UN climate change conference at COP27. Anna holds a Masters degree in Geography from the University of Cambridge.
