The rapid expansion of renewable energy industries, particularly offshore wind and hydropower is creating a substantial demand for climate-related insurance solutions.
According to data from Bain & Company, the premium revenue for commercial climate insurance solutions is projected to more than double, rising from approximately €25 billion (about $27.6 billion) in 2022 to €60 billion by 2030.
The consulting firm indicates that solutions related to renewable energy, biodiversity, environmental liability, carbon offsets, new infrastructure, mobility, and advisory services will see significant growth.
While some of these technologies are already familiar to many insurers, newer technologies are emerging, presenting both growth opportunities and considerable risks.
Three Categories of Climate-Related Insurance Markets
In an interview with Insurance Business, Dr. Christian Graf, who leads the sustainability and responsibility financial services practice for Bain & Company across EMEA, outlined three main categories of climate-related markets.
First, renewable technologies like photovoltaic solar, offshore wind, and hydropower represent a well-established market for insurers and currently dominate the climate solutions landscape. “Despite its maturity, we expect this segment to grow significantly—around 6-10% annually,” Graf explained.
Second, emerging technologies, particularly in carbon capture, utilization, and storage (CCUS), are rapidly developing. “These technologies aren’t yet at scale, so the market remains small. However, we expect this sector to grow by more than 50% annually by 2030, becoming significant in five to six years,” Graf added.
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Finally, Bain & Company has noted a rising demand for advisory services related to physical risks and climate solutions. Graf remarked, “While not directly linked to gross premiums, this segment will drive growth in the future.”
How Are Insurers Approaching Climate Insurance?
Renewable energy is proving to be a crucial focus for insurers looking to align their portfolios with cleaner energy sources. However, insurers face a delicate balancing act: they must determine when and how to enter these markets without exposing themselves to unknown risks.
Insurers are adopting various strategies for these emerging technologies. Graf identifies three primary types of players in this space.
The first group is taking a cautious approach, focusing on well-understood risks. “They strategically decide to concentrate on the risks they know well,” Graf said. These companies are also willing to wait a few years to see how technologies like CCUS develop before committing to insuring those risks.
Conversely, the second group of insurers is more aggressive, recognizing the advantages of being early movers. These companies aim to familiarize themselves with emerging risks and technologies while their competitors remain hesitant.
“They strive to be the first movers to gather data and learn,” Graf noted. Their rationale is that early market entry provides a critical advantage, allowing them to acquire knowledge that will facilitate scaling in the future.
However, entering these new markets has its downsides. Insurers venturing into these areas must be cautious not to let their optimism about growth cloud their judgment. To effectively price their policies, they need a thorough understanding of the underlying exposures.
“It also requires investments from the insurers,” Graf pointed out. “You must comprehend the technology behind carbon capture and how it will scale over time.”
For the cautious players, maintaining profitability in the rapidly evolving climate insurance sector will be challenging. In established markets, competition is already fierce, which can compress profit margins and make it harder for insurers to sustain strong financial performance.
What Does Growth in Climate Insurance Mean for Brokers?
Beyond underwriting and risk management, advisory services are emerging as a significant growth area.
“We are witnessing an increasing demand for advisory services related to the physical risks of wildfires, floods, and droughts, as well as the risks tied to transitioning to a carbon-neutral economy,” Graf stated.
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Advisory services present a growth opportunity not only for insurers but also for brokers, who are well-positioned to capitalize on this market. Graf noted that both insurers and brokers are competing to capture a share of the advisory landscape, with many insurers making substantial investments to scale their offerings.
“A lot of players are trying to break into this advisory space, and I see insurance companies heavily investing in scaling these services across the industry, from carriers to brokers and managing general agents (MGAs),” Graf concluded.
