Insurance – the great enabler

At COP28 in Dubai, UAE, our Climate Risk and Resilience team led events with policy makers, business leaders and climate experts from around the world on accelerating and scaling the response to the Climate Emergency. 

From innovations before the Industrial Revolution to today’s climate challenge, insurance has a part to play. Rowan Douglas, CEO of Climate Risk and Resilience, delivered a keynote at COP28 on the enabling role of insurance to give confidence, unlock the flow of capital and ultimately ensure a resilient future for all.

Watch Rowan's keynote from COP28 below, and read on for further insight.

A constant in change

The boilers that powered the first industrial revolution; the mass electrification that supported the second and the social protection that enabled populations to cope with these massive changes – all made possible by insurance. Without it, risk would not have been managed, safety standards would have poorly set and applied and investors would have been unable to commit at scale. It was the integral role that insurance played that allowed investors, and more importantly, individuals, to engage with the future. Insurance has been – and rather, has to be – a technologically-driven risk management cultural and economic asset to society.

Climate is the ultimate risk management challenge we all face. The insurance industry and policy makers need to re-learn these lessons – fast. 

Insurable means bankable

To accelerate progress we must improve the bankability of projects, to allow cheaper and more abundant capital to flow in. Insurance, and crucially, insurance expertise, can help mitigate and lower the risk involved in projects and their specific technologies.

A new technology going from pilot stage to scalability is actually a process that can be insured. Banks will be concerned, or even reserved, at the prospect of providing specific scaling capital until technologies has been proven at scale, which itself requires a new level of performance. Howden has pioneered the approach in renewable geothermal development, where some of the technology was unproven. We mobilised insurance markets to guarantee the performance of that technology, allowing banks and other mainstream debt to be brought to bear at scale, completely unlocking and transforming that market.

The same insurance opportunities exist in carbon capture and storage, which poses long term risk management challenges to guarantee that sequestration process for decades. By mobilising traditional forms of insurance in new ways, banks, investors and oil companies will have the confidence and ability to invest at the levels we need – positioning insurance as the great enabler.

Building confidence and trust

In voluntary carbon markets, insurance can provide confidence in a rapidly changing landscape. The challenge: can you be confident that the green investment you make, in say forests or mangroves, will be there in five or ten years’ time? Will there be a disaster that will wipe them out, meaning you won’t be able to claim the credits? Will there be a political risk? Enabling those markets to work by insuring against those risks is going to transform and empower this market, as well as provide a critical form of governance. 

Insuring means ensuring

Offtake agreements, particularly in the climate action space, are important tools as businesses seek funding to build and scale technologies. Important new ventures are stalled because they can’t access the offtake funding they require. Investors on the other hand, need to offset the credit risk, which is where insurance comes in. 

Offtake financing insurance is specifically designed to ensure that funding can be present on a more predictable, less risky timeline. The insurance market can reinforce those business cases, and provide the long-term security required.

Insurance doesn’t just ensure financing – it can multiply it. As outlined in the recent CISL Loss & Damage (L&D) paper we supported, the power of L&D funds can be multiplied up to 75 times when protecting the GDP – and, most importantly, lives – on small island states and in vulnerable countries. This is a remarkable illustration of how insurance can be a force multiplier in security. It’s that structural protection of countries, as well as some of the more specific technological protections above, which, hopefully, will mobilise investment and security for those most vulnerable countries for the next 25 to 30 years.

Our aim, both at COP28 and beyond, is to finally bring insurance to the table in both the low carbon transition and critically, in building resilience to help protect the lives and livelihoods of those facing the brunt of the impact of climate change.