Climate insurance markets are poised for massive growth

The rapid growth of renewable energy industries such as offshore wind and hydropower is driving significant demand for climate-related insurance solutions.

Bain & Company data shows that premium revenue growth for commercial climate insurance solutions is expected to more than double from around 25 billion euros ($27.6 billion) in 2022 to 60 billion euros by 2030.

According to the global consulting firm, solutions related to renewable energy, biodiversity, environmental responsibility, carbon offsetting, new infrastructure, mobility and advisory services will increase significantly.

Some of these technologies are already familiar territory for many insurers. At the same time, newer technologies are emerging that present promising growth opportunities, but also significant risks.

Three categories of climate-related insurance markets

In an interview with Insurance Business, Dr. Christian Graf, who heads Bain & Company’s financial services practice for sustainability and responsibility in the EMEA region, highlighted three main categories of climate-related markets.

First, renewable energy sources such as photovoltaics, offshore wind and hydropower. It is already an established market for insurance companies and currently the largest for climate solutions. “Despite its maturity, we expect it to grow significantly – around 6% to 10% annually,” Graf said.

Secondly, new technologies are developing rapidly, especially related to carbon capture, utilization and storage (CCUS). “These technologies have not yet been developed on a large scale, so the market is still small. However, we expect that this market will grow by over 50% annually by 2030, and in five to six years it will become significant,” Graf said.

Finally, Bain & Company has seen growing demand for advisory services related to physical threats and climate solutions. Graf noted, “While not directly tied to gross premiums, this is another segment that will drive growth in the future.”

How do carriers approach climate insurance?

Renewable energy sources are proving to be a key focus for insurers looking to achieve climate goals and adapt their portfolios to cleaner energy sources. However, insurers face a difficult task: they must decide when and how to enter these markets without exposing themselves to unknown risks.

Insurers are taking different approaches to these emerging technologies. According to Graf, there are basically three types of players in this space.

The first group takes a cautious approach, sticking to well-understood risks. “They are intentionally making a strategic decision from today to focus on the threats they know,” Graf said.

These companies are also willing to wait a few more years to see how technologies like CCUS evolve before committing to risk insurance.

On the other hand, the second group of insurers is more aggressive, seeing benefits in moving early on the market. These companies want to learn about emerging threats and technologies while competitors wait on the sidelines.

“They’re trying to be the first to learn and collect a lot of data,” Graf said. Their rationale is that by getting to market early, they can gain a critical advantage by gaining knowledge and data that will help them scale more easily in the future.

However, entering the market early has its disadvantages. Insurers entering these new areas must be careful not to let optimism about growth cloud their judgment. To price their policies effectively, insurers also need deep knowledge of the underlying exposures.

“It also involves investments on the part of insurers,” Graf noted. “You need to understand carbon capture technology. How will it scale over time?”

For cautious players, balancing profitability in a fast-growing sector like climate insurance will be a challenge. In established markets, competition is already fierce. For insurers, this increased competition could reduce profit margins, making it more difficult to maintain strong financial performance.

What does the development of the climate insurance space mean for brokers?

In addition to underwriting and risk management, consulting services are also becoming an important area of ​​growth.

Advisory services are not only a development opportunity for insurers themselves – brokers are also well prepared to enter this market. Graf noted that both insurers and brokers are trying to grab a slice of the advisory pie, and many insurers are making significant investments to scale their offerings.

“There are a lot of players trying to break into this advisory space, and I see insurance companies investing heavily in scaling these services across the industry, from carriers to brokers and MGAs,” Graf said.

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