Insurance sector to take on carbon exchange opportunities in Indonesia: Report

Carbon exchange presents an opportunity for the financial industry, particularly the general insurance sector. 

Last 26 September, Indonesia officially launched its carbon exchange, a development that has garnered support from various sectors, including the insurance industry, reported CNBC Indonesia.

Other countries have demonstrated that the insurance sector can play a crucial role in safeguarding participants in carbon exchanges against climate-related risks and other factors affecting carbon credits.

Bern Dwyanto, the Executive Director of AAUI, noted that the establishment of the carbon exchange presents an opportunity for the financial industry, particularly the general insurance sector. 

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He explained that general insurance fundamentally assists other businesses in managing and mitigating risks.

Bern emphasised the close connection between industrial development and the performance of the general insurance industry. 

This relationship arises because the insurance industry supports the growth of various sectors, including carbon trading. However, he also stressed the importance of conducting in-depth studies and research to determine the most effective schemes for supporting carbon trading.

This involvement of the insurance industry in carbon trading has been observed in several countries. 

For instance, AXA XL, an English insurance company, recently introduced a new product called Excess Emissions Insurance. 

This product offers compensation for carbon offsets on cargo ships in case of unexpected extended journeys resulting in additional emissions. The policy provides compensation in the form of voluntary carbon credits equivalent to the excess emissions produced.

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Furthermore, the global insurance company Howden Group has developed the first insurance product that protects against fraud and negligence in voluntary carbon market credits. 

In collaboration with carbon financing company Respira International and reinsurance investor Nephila Capital in 2022, Howden introduced this protection against third-party negligence and fraud, reducing the potential risk associated with purchasing carbon credits. 

This initiative addresses past issues in the voluntary carbon market, such as scams and misrepresentation of carbon credits, which occurred in the 2000s, leading to the sale of credits at unjustifiably high prices.