Insurers urged to boost solutions for carbon market

Insurers have been slow to come up with solutions for the carbon market and nature-based solutions to limit global warming, but have an opportunity to now step up to the plate and create a new market that could be worth as much as $1.3bn globally, according to a new report from BeZero Carbon, in partnership with brokers Howden and Blackford. Insurance for the growing nature-based carbon market will “professionalise” and “raise standards” in the early days of its development and also help to unlock its growth, carbon market expert BeZero believes. Ronan Carr, chief research officer for BeZero Carbon, said insurance products for nature-based solution have been “slow” to take off. “The nature-based carbon-offset markets are crying out for insurance solutions in order to scale quickly,” he added. Efforts to achieve “greater standardisation and regulation are gaining momentum, whilst private sector innovations are multiplying in the carbon and natural capital markets, raising the bar for transparency and accountability”, said Carr. “To capture this opportunity, insurers need to set out a bold and clear strategy of how to integrate insurance solutions into this new market,” he said. Charlie Langdale, head of climate risk and resilience at Howden, said the insurance sector is helping buyers transition to low-carbon energy sources but added that insurers need to begin covering these new buyer markets now. “Soon enough, regulation will come into this market and certain risk management controls will be mandated, but the insurance industry shouldn’t be waiting for this to happen... There is a huge pool of untapped modelling skills, data and capacity that could be used to accelerate the growth of nature-based solutions, a market that has the potential to provide up to 30% of the climate mitigation required to limit global warming to 1.5°C.” In the absence of regulation, insurance support would boost confidence and drive demand for nature-based solutions to support global climate goals, the report says. Existing business lines such as crop insurance and existing risks such as professional liability and nat cat “provide a natural starting point” for the new markets, it continues. The report calls for partnerships using pilot schemes and sidecar investments to drive momentum. There is also the need for credit insurance to cover banks and investors financing long-term projects, it says. “Insurance has the power to remove barriers to growth of nature-based solutions and improve risk management by expanding from adjacent markets, partnering with investors and leveraging technology,” it adds. The voluntary carbon market could grow to generate revenues of $50bn each year by 2030, while nature-based solutions could top $800bn by 2050, the report says. “This represents a huge opportunity to create a new insurance market estimated to be worth $1.3bn globally and up to $2bn-$4bn in blue-sky scenarios,” BeZero said. Tom Aldridge, founder and managing director of Blackford, added: “Insurance fosters confidence which, in turn, attracts investment. In order to grasp the opportunities associated with nature-based solutions and carbon markets, as an industry, the insurance sector must transition to a more proactive position, helping build the knowledge and comfort required for future capital investment in this fast-developing area.”

Insurers urged to boost solutions for carbon market

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