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3 ways the re/insurance industry can accelerate net zero by facilitating capital

Re/insurers can help solve the climate crisis by matching capital to risk where it's needed, such as via clean tech solutions, and by de-risking projects and technology development, which will encourage faster and more meaningful investment, says insurance and reinsurance broker Aon.

In the report, “2023 Weather, Climate and Catastrophe Insight” published by Aon, Mr. Richard Dudley, Aon’s global head of Climate Strategy says that there are three primary ways the industry can help accelerate the journey to net zero emissions.

Facilitating transition to lower carbon activities

First, instead of moving away on arbitrarily short timescales from carbon-intensive and high-emission industries, re/insurers should be enabling and supporting these industries to transition to lower carbon operations. This can be done by both supporting and incentivizing these industries to transition, and by de-risking investments in low-carbon technologies, for example, carbon capture and storage and new types of renewable energy.

To fully grasp this opportunity, the re/insurance industry must change some of its mindset to formulate a consistent forward-looking pricing model for new risks.

Duration mismatch

Second, the industry should consider the need for longer policy terms than the usual annual renewal cycle. New clean tech industries, for example, are often not investable at scale, and re/insurance coverage’s stability and predictability over longer periods could free up capital flows.

This “duration mismatch” is impeding financing for green technologies as the long-term insurability of assets comes into question — which in turn increases risk for investors. We’re leveraging the existing longer-term approach in some existing lines of business and working with new and existing capital providers to increase the appetite for longer-term risks.

Working with pension and investment markets could also inform longer-term thinking about assets and liabilities — enabling the application of these insights to the general reinsurance world more systematically


Third, the re/insurance industry must collaborate and innovate with stakeholders, including existing and alternative sources of capital, green technology startups, risk mitigation firms and the public sector, so society can decarbonize at scale. As a recent example, Revalue Nature, which provides nature-based carbon offset projects, collaborated with Aon to insure investments against unforeseen events such as wildfires or bug infestations.

Decarbonization is changing the risk landscape and any un-insurability of increasingly volatile weather presents a risk to the economy. But by engaging new talent, partners and stakeholders, the re/insurance industry can play a truly transformational role in the climate transition by enabling better decisions for a more sustainable future.


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