As the world moves toward a more sustainable future, the role of insurance in supporting climate transition cannot be overstated. According to a recent report, over half of the $19 trillion committed to climate transition financing through 2030 will necessitate additional insurance. This insight underscores the critical need for corporations to engage the insurance industry early in their climate risk management planning to ensure adequate capacity and long-term coverage.

The Importance of Early Engagement

Engaging the insurance industry at the onset of climate risk management is crucial for businesses looking to secure their future in a rapidly changing environment. The report emphasizes that early engagement with insurers can be a “game changer” in unlocking climate finance at the speed and scale required. The insurance sector has the potential to be a pivotal enabler, providing the necessary security to attract capital and support new investments aimed at mitigating climate risks.

Rising Costs and Increased Demand

The report highlights a significant increase in insurance premiums for climate resilience and natural catastrophe protection, with projections indicating a 50% rise by 2030. This surge is driven by escalating annual losses from climate events, increased exposures, climate risk disclosures, and the transfer of risk from governments to private markets. As premiums rise, businesses must navigate unprecedented structural pressures on insurance systems across public, private, and mutual markets. There is no certainty that the market will meet this growing demand, making strategic planning and engagement with insurers even more vital.

Shifting from Annual Procurement to Long-Term Partnerships

One of the key recommendations is for businesses to transition from annual procurement of insurance to forming long-term partnerships with insurers. This shift can lead to multi-year coverage, public-private insurance solutions, and forward-looking analytics. By adopting a long-term view of risk, companies can enhance the bankability and insurability of new investments, ultimately supporting their climate transition strategies and improving climate resilience.

The Need for Innovation in the Insurance Market

To meet the increasing demands of the climate transition, the insurance market must innovate continuously. Ensuring that insurance remains accessible and affordable across various sectors and regions is essential. Insurers should also take a central role in the de-risking discussion within the finance community. This involvement is crucial for strengthening the global response to climate change and ensuring that businesses can secure the necessary coverage to support their climate initiatives.

Building Expertise and Trust through Partnerships

Astute companies are now elevating the importance of future insurability to boardroom level discussions. Developing long-term partnerships with insurers is key to building shared expertise and trust. These partnerships can optimize future access to scarce underwriting capacity and ensure that businesses are well-positioned to navigate climate-related risks. Failure to prioritize long-term collaboration with insurers may result in significant climate valuation risks.

The Role of Public-Private Collaboration

Public-private collaboration is essential for advancing climate transition strategies. By working together, the public and private sectors can develop innovative insurance solutions that provide the necessary security for investments aimed at mitigating climate risks. This collaboration can also lead to the development of forward curves for risk, which are critical for assessing and managing long-term climate risks.

The Financial Bedrock for Climate Investments

Insurance serves as the financial bedrock needed to de-risk investments and attract the additional capital necessary for mobilizing the climate transition. Without sufficient insurance to de-risk markets, achieving a smooth transition to a net-zero and climate-resilient economy will be impossible. The insurance market must lead the de-risking dialogue to ensure the insurability and bankability of climate action.

The Way Forward for Businesses

Managing risk is one of the biggest barriers to a just and resilient transition, and insurance can play a pivotal role in overcoming this challenge. For businesses, particularly those based in the Bahamas and other regions vulnerable to climate impacts, the message is clear: engaging the insurance industry early and forming long-term partnerships is essential for securing future climate resilience. By prioritizing risk management and collaborating with insurers, companies can unlock the financing necessary for their climate transition strategies, ensuring a sustainable and resilient future.

In this new era of climate risk, the role of insurance as a facilitator of climate action cannot be underestimated. It is imperative for businesses to recognize the importance of insurance in their climate risk management planning and take proactive steps to secure the coverage needed to navigate the challenges ahead. By doing so, they can contribute to a global response that not only mitigates climate risks but also supports a fair and equitable transition to a net-zero future.