2024: the top 5 insurance themes in sustainability and climate

Biodiversity refers to the variety of living species on Earth, including plants, animals, bacteria and fungi. It plays a crucial role in ensuring sustainability.

Although biodiversity is included within the ‘E’ of ‘ESG’, it has often fallen by the wayside. Usually discussions around emissions have taken centre stage — but this is starting to change.

As of February 2024, developers in England are legally required to deliver at least a 10% increase in biodiversity when major building projects are undertaken. This means that a development should result in more, or better quality, natural habitat than there was before.

This new legislation has implications for insurers, particularly in regards to underwriting property developments. They may need to think about new risks, such as potential biodiversity loss and how organisations will manage their ‘net gain’ commitments into the future.

Biodiversity net gain requirements can also play into insurers’ increasing role in supporting ‘build back better’. After a loss event, properties can be rebuilt not only to become more resilient to hazards, but also more sustainable with increased biodiversity. 

Now that organisations are required to think about biodiversity net gain, there is the potential for insurance companies to offer support. This could be through services to measure biodiversity or help in purchasing biodiversity credits where developers cannot use their land to achieve the required 10% gain.

We expect to see insurance companies become more involved in biodiversity over the rest of the year – whether that is through supporting their clients with this new legislation, or as part of their own sustainability plans.

As part of their sustainability strategies, insurers are looking to create new products to support a greener economy. These products cover a range of areas, from renewable energy to the carbon economy.

At InsTech, we’ve been hearing a lot of interest around carbon credit insurance over the last few years – but 2024 seems to be the year of action. The last few months have seen multiple new projects and funding rounds within the carbon insurance space.

For example, specialist insurer CFC entered the carbon market with a new product in March, partnering with environmental markets specialist IncubEx. The product covers both the physical and political risks faced by businesses buying voluntary carbon credits on a forward basis (where the credits are delivered at a future date).

Over the past year, other large insurance companies such as AXA XL and Howden have been working on new products within the realm of carbon and renewables. To learn more about the carbon insurance market, you can read our 2023 report here.

With increasing interest from insurers and financers, we’re excited by the likelihood of seeing more products launched over the rest of 2024.

In recent years, 65% of businesses have experienced unexpectedly high losses from supply chain risks. According to WTW’s Global Supply Chain Report, 80% of those surveyed said a lack of access to insurance and risk transfer was one of their greatest challenges in addressing supply chain risks.

Insurers are increasingly trying to fill these gaps, helping their clients to mitigate losses from disruptions caused by climate events and geopolitical instability. They are doing so through a range of new and innovative products, including parametric insurance.

But risk transfer solutions are not the only way that insurers are supporting clients with supply chain resilience. It is becoming increasingly expected that an insurer’s role extends beyond just providing coverage.

Insurers such as Swiss Re are offering tools and services to support corporates with risk management, particularly supply chain resilience. Data and technology companies like Mitiga are also partnering with insurers to provide corporates with insights into how climate change could impact their operations. This is helping with business continuity planning and supplier diversification decisions.

We expect to see insurers release more tools to support clients with supply chain resilience in the future. Some will build them in-house, whilst others will work with technology and data partners.

Building natural catastrophe models is not easy. Climate change brings an added layer of complexity, making it more important than ever for insurers and risk managers to understand the changing nature of catastrophe risk.

One way this challenge is being tackled is through initiatives that allow catastrophe modellers to collaborate by sharing research, methods and data. Companies are also combining their expertise to provide insurers with new models for risks such as tropical cyclones and floods.

As well as collaborating to create new models, lots of organisations are partnering to bring increased data choice for insurers in an accessible format. For example, JBA Risk Management and Addresscloud have recently partnered to make traditionally complex flood data more accessible. JBA’s data has been used to create flood risk scores for properties across Europe, which are easily accessed via the Addresscloud platform. In a recent InsTech webinar, JBA discussed the importance of collaboration for making data more accessible to insurers.

Other organisations like Cytora are partnering with a large number of data and model providers to help insurers easily access a range of information — from Fathom’s flood data to Tensorflight’s property insights. 

These collaborations and partnerships have a range of benefits to the industry, from improving the accuracy of models to making the underwriting process more efficient for insurers. Over the rest of 2024 we expect to see this collaboration within the modelling and insurance community continue to grow.

The UN-convened Net-Zero Insurance Alliance (NZIA) was originally formed in early 2021 by eight multinational European insurers. By 2023, five of these founding members had left the Alliance due to external political and legal pressures. 

This has led to the group’s disbandment in April 2024. It will be replaced by the Forum for Insurance Transition to Net Zero (FIT), which will continue to work on metrics and voluntary target frameworks for insurers.

Even for insurers that will not be a member of the new group, net-zero remains on the agenda. Insurers are committed to their own respective sustainability strategies and decarbonisation goals.

Insurers have been making the measurement of emissions an increasing priority over the last few years. In 2024, they are looking to move past this analysis to action. Translating these broad goals into incremental change is challenging, but something insurers are starting to take seriously. At InsTech’s recent sustainability networking event, Convex and Atrium Underwriters discussed some of the initiatives they are working on.

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