Insurers pivot to science-based cleantech risk modeling

This shift aims to address climate risks and capitalise on cleantech opportunities. 

Insurers entering the cleantech market are adopting proactive underwriting and risk modeling based on science and engineering rather than historical data, according to Cleantech Group. 

This shift aims to address climate risks and capitalise on cleantech opportunities.  

Whilst early adopters gain a competitive edge, the approach carries business risks, prompting insurers to outsource expertise through managing general agents (MGAs) or third-party services. 

Holly Stower, Group lead for Resources & Environment at Cleantech Group, noted that insurtechs grew at a 25% compound annual growth rate (CAGR) in 2023, compared to 7.5% for the broader insurance sector. 

She emphasised that insurers play a critical role in scaling cleantech but must invest in expertise and take a more ambitious approach.  

Insurers are engaging with cleantech by developing new insurance products, such as technology performance insurance, creating risk-transfer solutions like parametric insurance, and providing financial support to innovators through venture capital and accelerator programs.  

Major players in cleantech insurance include Chubb, Munich Re, AXA, and Howden. 

Carbon credit insurance is emerging as a significant opportunity, with voluntary and compliance carbon markets valued at $40b and $1.88t, respectively. 

Parametric insurance is also gaining traction as a tool to address rising climate risks. 

From Q1 to Q3 2024, the insurance protection gap stood at 60%, with $258b in economic losses compared to $102b in insured losses.

The 2024 Los Angeles wildfires alone could cause up to $250b in damage, or 4% of California’s GDP.  

Unlike traditional policies, parametric insurance uses advanced climate data models and real-time sensor validation for fast payouts.