European insurers must accelerate new risk transfer tools to support net zero

The EC’s newly proposed Net-Zero Industry Act (NZIA), a crucial part of its Green Deal Industrial Plan, makes it even clearer that European insurers and brokers will need to step up efforts to find innovative risk transfer solutions to help deliver the green transition. The EC’s NZIA aims to scale up manufacturing of clean technologies in the EU and make sure the block is well equipped for the clean-energy transition. It is hoped that the act will strengthen Europe’s resilience and boost the competitiveness of EU net-zero technology manufacturers, while making its energy system more secure and sustainable. The EU believes that the NZIA will make it easier to set up net-zero projects in Europe and attract investment. The aim is for the EU’s overall strategic net-zero technology manufacturing capacity to meet at least 40% of its needs by 2030. The EU said this will accelerate progress towards its 2030 climate and energy targets, while boosting the competitiveness of EU industry, creating quality jobs and supporting efforts to become energy independent. EC president Ursula von der Leyen said: “We need a regulatory environment that allows us to scale up the clean energy transition quickly. The Net-Zero Industry Act will do just that. It will create the best conditions for those sectors that are crucial for us to reach net zero by 2050: technologies like wind turbines, heat pumps, solar panels, renewable hydrogen as well as CO2 storage. Demand is growing in Europe and globally, and we are acting now to make sure we can meet more of this demand with European supply." But risk managers have told Commercial Risk in recent times that they are frustrated by the lack of adequate risk transfer solutions needed to help with new technologies and methods needed to make the transition. They want more help in areas such as wind farms and green hydrogen, as well as mass timber and green cement in construction. It is good that incentives are now being provided by the EU and national governments to foster the development of technologies needed to make the transition. But a lack of adequate insurance coverage for these projects could prove a major stumbling block. As Ferma president Dirk Wegener said recently in relation to the Corporate Sustainability Reporting Directive, which comes into effect for financial reporting next year: “Companies will be under pressure to show their progress to carbon neutrality, but lack of sufficient risk transfer will slow investments in innovative technologies as more risk must be carried by the enterprise.” Other leading risk managers have echoed this concern during the AMRAE conference in France and during Commercial Risk’s recent meetings with risk professionals across Europe for our annual Risk Frontiers Europe survey. The challenge for the insurance sector is clear. None of these new technologies will have track records on which to base their risk analysis and pricing. But risk transfer solutions will be needed, including for technologies covered by the NZIA. These technologies include solar photovoltaic and solar thermal, onshore wind and offshore renewable energy, batteries and storage, heat pumps and geothermal energy, electrolysers and fuel cells and biogas/biomethane, as well as carbon capture, utilisation and storage. Grid technologies, sustainable alternative fuels, advanced technologies to produce energy from nuclear processes with minimal waste from the fuel cycle, small modular reactors and related best-in-class fuels, are also covered by the NZIA. The proposed regulation now needs to be discussed and agreed by the European Parliament and Council of the European Union before being adopted and entering into force.

European insurers must accelerate new risk transfer tools to support net zero

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Want to read this article?

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