Leading the energy transition: the role of insurance
Any hope of the world achieving a net-zero economy is contingent on the insurance industry embracing its leadership capabilities in the energy transition. The discussion in mainstream media on insurance and climate change has, on occasion, been dominated by insurers withdrawing from or raising premiums in areas disproportionately exposed to climate change, such as Florida and California, leaving vulnerable communities either underinsured or completely exposed amid burgeoning climate risks.
These tough decisions are grim market realities and often the result of a hard-headed realism among profit-driven organisations; the need to take these is also arguably the direct result of the fossil fuel industry emitting planet-warming CO2 for decades.
No fossil fuel or renewable energy project can materialise without coverage, meaning any discussions about a decarbonised economy must involve insurers. Too often, we’re understood cynically as the industry that opens the door for climate transgressions.
But there’s another side to our industry. Our leaders can, and many do, mitigate fossil fuel expansion by redirecting underwriting resources to renewables. Instead of passing on the financial consequences of climate change to the consumers, as an industry, we need to work towards transitioning away from what creates the higher premiums in the first place: the fossil fuel sector. The grim realities of climate change mean that insurance companies must not only reckon with their role in emitting CO2 but also demonstrate clear leadership in the energy transition.
Challenges
The City of London is no stranger to climate protestors outside offices, notably an Extinction Rebellion protest in January that targeted insurance CEOs.[1]
No matter how one feels about these protestors, the fundamentals are difficult to dispute. If one accepts the science behind climate change, then the idea of divesting from fossil fuels is a given, and covering new projects is inconceivable.
Of course, anyone within financial services understands that the realities of decarbonising our industry are complex and require redefining the way we have historically operated. The technology and risks developed around oil expansion provide ample historic data for underwriters and brokers to ensure robust policies, while the technology around renewables means a risk assessment conducted on shakier grounds.
Fully transitioning our energy coverage to renewables means restructuring our risk appetites, assessments, and transfer process: a tall order. Backlash from stakeholders is a real threat, as we saw the notable scaling back of renewable efforts by major oil and gas companies because of sustained pressure.[2] But, as insurers, we can create alternative incentives to encourage energy companies to stay the course.
Abandonment of renewables by fossil fuel companies while global energy consumption skyrockets paints a bleak picture, deflating any peripheral industry’s motivation to change. The realities of the political climate in the United States, the largest market for London insurers, have raised the possibility of bans on financial services companies with stricter fossil fuel policies.[3]
Enterprising companies are nonetheless finding ways to thrive and deliver strong returns in line with ESG efforts.[4] Any sentiment that the London insurance market is unable to lead as key climate innovators alongside other financial services, governments, and nonprofits underestimates the exciting developments underway and the insurers who are already meeting the world’s needs.[5]
Opportunities for carriers
Currently, many insurance carriers do not offer consistent, cost-effective and robust coverage for renewable or low-carbon energy projects due to a lack of maturity in the sector,[6] but the key risks are the same as those associated with any new technology. The London insurance market predates the Industrial Revolution, meaning we are more than able to facilitate the world into a new renewable revolution. Several new entrants into the renewable space have already been making a difference.
Recent geopolitical threats have exposed vulnerabilities already inherent in our global energy grid, underlining that the world needs our relationship to energy to change, even looking outside of climate realities. Rapid growth in solar photovoltaics, lithium-ion batteries, and energy storage means the technology for a full transition is here[7] and renewable potential is projected to meet global energy demand.[8]
Insurance carriers as leaders
We are projected to surpass the 1.5 °C warming target originally agreed by the IPCC, itself already a destabilizing amount, but indicates the point where we can avoid the worst effects of climate change.[9] To limit global warming to preserve a liveable planet, as insurers, we need to work to incentivise the energy transition and move away from fossil fuel consumption.
While the current mobilisation in renewables is promising, the transition needs to speed up to keep pace with climate limits. The significant scaling back of renewable efforts among large fossil fuel industries[10] means more fossil fuel consumption as energy demand grows, but, through premium incentivisation and gradual tightening of ESG policies, insurers can slow or even reverse this trend.
Access to capital is a major setback for commencing renewable infrastructure projects due to gaps in risk prevention and coverage. This capacity can be redirected to renewables if insurers partner with renewable companies and create sustainable risk assessment strategies together, enabling project resilience that attracts investors.
Some of the more business-savvy activist groups agree: spokesperson for Insure Our Survival Steve Tooze argues insurance executives don’t have to be passive observers or enablers of climate-harming industries, but can become “climate heroes” who can “use their superpower to shut down the fossil fuel industry.”[11] The attitudes around financial services and climate activism, then, do not have to be combative and defensive. Insurance leaders whose actions reflect their words regarding sustainability will surpass competitors both in the public eye and in the ample returns from renewables.
By Amelia Leaphart
Public Relations and Business Development Assistant
[1] https://extinctionrebellion.uk/2025/01/30/city-of-london-insurance-ceos-targeted-for-climate-crimes-in-a-second-day-of-action/
[2] BP blames ‘misplaced’ faith in green transition for its renewed focus on fossil fuels | BP | The Guardian
[3] https://www.thebanker.com/content/ebacdba7-956c-592c-acba-9a1d688b2aa9
[4] https://www.mckinsey.com/industries/financial-services/our-insights/insurance/women-in-insurance-leading-voices-on-trends-affecting-insurers/esg-in-insurance-with-eleonora-sharef
[5] https://www.reuters.com/business/sustainable-business/swiss-re-cuts-fossil-fuel-cover-oil-gas-help-climate-2022-03-17/
[6] Pg. 7 pdf-renewable-energy-RenEnergy_ExecSummary.pdf
[7] Pg. 5 Ibid
[8] Global overview – Renewables 2024 – Analysis – IEA
[9] 1.5°C: what it means and why it matters | United Nations
[10] BP blames ‘misplaced’ faith in green transition for its renewed focus on fossil fuels | BP | The Guardian
[11] https://extinctionrebellion.uk/2025/01/30/city-of-london-insurance-ceos-targeted-for-climate-crimes-in-a-second-day-of-action/