Global broker Howden has warned of capacity constraints as the “climate transition” drives demand for insurance for green assets.

The $US19 trillion ($28.6 trillion) committed to financing the development, construction and operation of green infrastructure and technology through to 2030 will require additional insurance coverage of up to $US10 trillion ($15 trillion), it says in a joint research paper with Boston Consulting Group.

However, there is no guarantee insurance providers will meet this demand at the speed, scale and scope required.

“The inevitable changes that the climate transition will bring will impact both the availability of insurance and the level of demand,” the paper says.

As investments supporting the clean energy transition, resilience and adaptability grow, and as costs arising from climate change increase, the paper says, businesses must confront a critical danger: where insurance has previously been treated as a given, a gap may emerge between demand for cover and the available supply.

“The global demand for insurance to support the climate transition is set to increase dramatically. And not only is the scale of this transition unprecedented, but so is its scope, with new initiatives being implemented simultaneously everywhere across the globe.

“This enormous investment will require both traditional and new forms of insurance to support the speed and scale of change forecast.”

The paper says insurance has been readily available to large businesses throughout the modern era.

“It is not surprising, then, that buyers have come to assume this situation will not change. However, the reality is that insurance capacity can no longer be taken for granted.”

Capacity is also constrained because physical risk and natural catastrophe premiums are expected to increase by 50% to $US200-$US250 billion ($301-$376 billion) by 2030. Increased losses from climate events, accelerated growth in exposure, implementation of climate risk disclosures and governments transferring public liabilities to private markets are driving the increase.

The paper says businesses will need to consider a new approach to ensure access to insurance. It suggests a move away from annual procurement to a long-term view of risk, which in collaboration with insurers could lead to multi-year coverage, public-private insurance solutions and forward-looking analytics as a basis for developing forward curves for risk.

“The development of longer-term partnerships between businesses and insurers, along with cross-sector planning and collaboration, is now essential to ensure sufficient capacity and coverage will be available.”

Click here for more from the report.

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