Insurers have a critical role to play in helping clients transition towards a low-carbon economy at a time when the buzz generated by COP26 is likely to lead to a spike in investment in new technologies, according to Lesley Harding, global head of energy at Liberty Specialty Markets (LSM).
Harding told The Insurer the Finance Day of the event had helped “shine a light on what a powerful force for good the industry can be”, adding that she hoped tangible actions would follow the past two weeks of discussions in Glasgow.
“The insurance industry has a massive role to play,” she said. “We have a unique, front-row seat to the impacts of climate change and we’re often among the first responders.”
To address the causes and impacts of climate change, she said it was critical for the industry to play its part in supporting the reduction of greenhouse gas (GHG) emissions as well as helping communities build more resilience.
In the energy sector, she said Liberty was already taking steps to help clients transition from a fossil fuel-based economy, associated with 60 percent of GHGs.
“We are partnering with customers who can demonstrate credible transition plans and providing support for innovation, without which we cannot achieve our goals of a low-carbon economy,” she explained.
These steps include becoming the first major carrier to offer capacity to Willis Towers Watson’s Climate Transition Pathway initiative, which helps customers find capacity when their transition plans have been accredited by an external third party.
“We’ve also been involved in developing innovative risk solutions for public-private partnerships engaged in renewable energy projects, significantly to support the transition pathways in some of the emerging economies.
“For example, our Financial Risk Solutions team provided political risk insurance to an investor for the development, construction, operation and maintenance of Gigawatt Global Burundi, which is a solar photovoltaic plant capable of generating 7.5 megawatts, increasing Burundi’s power generation capacity by 15 percent. It’s the first power plant to be built in Burundi for more than 30 years,” she said.
With a range of technologies needed to facilitate the transition, she said the carrier was investing in the capabilities, tools and techniques to assess and underwrite the new risks, in partnership with brokers, customers and industry-leading engineering consultancies.
“We also need to support our customers in the harder-to-abate sectors who have a credible climate transition plan in place,” Harding said.
“Clients are looking for continued support of their traditional fossil fuel operations, which provide the engine for growth of their renewable and greener businesses.
“My fear is that if we don’t continue to support those clients with some form of insurance capacity, they will have little option but to divest assets into private hands.
“There’s a danger of inadvertently causing the rise of the shadow emitter – private entities that do not have the same transparency as listed companies.
“And for new technologies, customers need us to be in lockstep with them – from the initial design phase through development – they cannot run the risk of investing in technologies which are ultimately uninsurable.”
Harding says one challenge yet to be addressed as an industry is how to create efficient access to insurance capacity, particularly for small-scale projects and those with new and emerging types of risks.
She highlighted a growing recognition among market participants of the need for more cross-industry collaboration.
“The challenges are so huge we need to form alliances to harness the talents of all the market,” she said.
Harding said finding solutions to the climate crisis is a shared responsibility across all sectors of society.
“Governments, business, academia, innovators and technology firms all have a role to play with the financial services sector as the great enabler.
“We need strategic partnerships across the public and private sectors to continue momentum around the mitigation journey,” she concluded. “Together, we can have an outsized positive impact.”