Climate insurance markets are poised for explosive growth

Strong growth in renewable energy industries such as offshore wind and hydropower is driving high demand for climate-related insurance solutions.

Data from Bain & Company shows premium revenue growth for commercial weather insurance solutions is set to more than double from €25 billion (US$27.6 billion) in 2022 to €60 billion in 2030.

Solutions related to renewable energy, biodiversity, environmental debt, carbon offset, new infrastructure, mobility, and advisory services will all grow significantly, according to the global consulting firm.

Some of these technologies are already common place for many insurers. At the same time, new technologies are emerging, promising opportunities for growth but also great risks.

Three categories of weather related insurance markets

Speaking to the Insurance Business, Dr. Christian Graf, who leads the financial services practice of sustainability and responsibility across EMEA for Bain & Company, identified three main categories of climate-related markets.

First, renewables such as photovoltaic, offshore wind, and hydropower. These are already an established market for insurance companies and are currently the largest weather solutions. “Despite its maturity, we expect it to grow significantly—about 6-10% per year,” said Graf.

Second, emerging technologies, especially those related to carbon capture, use, and storage (CCUS), are developing rapidly. “This technology has not yet reached a level, so the market is still small. However, by 2030, we expect this market to grow by more than 50% per year and become significant in five to six years,” said Graf.

Finally, Bain & Company noted an increase in demand for advisory services related to physical hazards and climate solutions. Graf noted: “While not directly tied to gross premiums, this is another category that will drive growth going forward.”

How do carriers approach weather insurance?

Renewables are proving to be a strong focus for insurers looking to meet climate goals and align their portfolios with clean energy sources. However, insurers face a tricky balancing act: they must decide when and how to enter these markets without exposing themselves to unknown risk.

Insurers are taking different approaches to this emerging technology. According to Graf, there are three broad types of players in this space.

The first group takes a cautious approach, sticking to well-understood risks. “They made a deliberate strategic decision starting today to focus on the risks they know,” Graf said.

These companies are also willing to wait a few more years to see how technologies like CCUS develop before committing to insuring their own risk.

On the other hand, the second group of insurers is more aggressive, seeing the advantage of being the first movers. These companies want to adapt to emerging risks and technologies while competitors wait on the sidelines.

“They’re trying to be the first movers to learn and collect a lot of data,” Graf said. Their reason is that by entering the market early, they can gain a critical edge, gain knowledge and data that will help them grow more easily in the future.

However, getting in early comes with a downside. Insurers entering these new areas must be careful not to let the prospect of growth cloud their vision. In order to price their policies effectively, insurers need a deep understanding of the underlying disclosures.

“It also involves investment on the part of the insurers,” Graf noted. “You have to understand the technology behind carbon capture. How will it grow over time?”

For cautious players, measuring profitability in a rapidly emerging sector like climate insurance will be a challenge. In established markets, competition is already intense. For insurance companies, this heightened competition can squeeze profit margins, making it difficult to maintain strong financial performance.

What does the growth in the climate insurance area mean for consumers?

Apart from underwriting and risk management, advisory services are also emerging as an important growth area.

Advisory services aren’t just a growth opportunity for insurers themselves—consumers are also well-positioned to tap into this market. Graf noted that both insurers and brokers are trying to capture a piece of the advisory pie, with many insurers making heavy investments to balance their offerings.

“Many players are trying to get into this advisory space, and I see insurance companies investing heavily in growing these services across the industry, from carriers to brokers and MGAs,” Graf said.

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