New climate risks require proactive underwriting approaches and risk modelling, according to Cleantech Group
SAN FRANCISCO, CA — February 6, 2025 — Insurers seeking to tap cleantech markets are adopting proactive underwriting approaches and risk modelling based on science and engineering, rather than historical data, to mitigate growing threats from climate change and take advantage of new markets in cleantech, according to Cleantech Group.
While this creates first-mover advantage for some, it also carries business risks, so insurers are outsourcing expertise to innovators, either via managing general agents (MGAs) or paying third-party services.
“It’s clear new operating models for insurers are paying off. Insurtechs are growing at a faster rate than incumbent insurers — 25% CAGR vs 7.5% for the broader insurance industry in 2023,” said Holly Stower, Group Lead, Resources & Environment at Cleantech Group. “Insurers wield considerable power in scaling cleantech markets but need to invest in expertise to mitigate risks and need to be more ambitious in supporting cleantech.”
Stower points out that insurers can engage with cleantech in three main ways. They can create insurance products to insure a sustainable transition, for example technology performance insurance; build new risk-transfer solutions, addressing rising climate risks through, for example, parametric insurance; and provide capital and support to innovators such as corporate VC entities and accelerator programs.
Other key findings:
Insurers hold significant power to scale cleantech. Insurance is emerging as a key enabler of cleantech, shifting from traditional risk assessments to proactively backing new technologies. Insurance can de-risk adoption, fast-track commercialization, and drive the transition to a sustainable future.
Chubb, Munich Re, Axa, and broker Howden are among the incumbents at the forefront of cleantech innovation. Chubb’s Climate+ is a leader among early- to late-stage cleantech companies and underwrites a 1/3 of Global Cleantech 100 companies. By offering guarantees on emerging innovations—like Munich Re’s warranties for batteries, hydrogen, and bioenergy—insurers help shorten sales cycles, build investor confidence, and unlock new forms of financing for FOAK projects.
Carbon Credit Insurance is the Next Big Opportunity for Insurers. As both the voluntary and compliance carbon markets are on rapid growth trajectories, (estimated at $40B and $1.88T, respectively) – the insurance market is seizing this opportunity. For innovators, the immature and unregulated market requires experts to create proprietary risk models, and to assess and underwrite fluctuating risks. Innovators such as Oka and Kita are partnering with insurers to provide such services.
Parametric Insurance Can be a Backstop for Increasing Climate Risks. In Q1 – Q3 2024, the insurance protection gap was estimated to be 60% ($258B of economic losses vs. $102B of insured losses) and is growing, leaving communities, businesses, and individuals without a financial backstop for climate risks. The LA wildfires this year are estimated to cause as much as $250B in economic damage and 4% of California’s GDP.
Tech-enabled parametric insurance makes projective estimates of risk via advanced climate data models, with sensors providing fast validation from pre-agreed triggers, rather than estimating via retrospective data and payouts based on loss. The main obstacles are lack of awareness and knowledge and a lack of data models. However, many advanced models exist, accounting for complex, compounding risks of climate change (e.g., Sust Global, Jupiter Intelligence) – but there is a lack of partnerships with these innovators and insurers to customize these models for their use.
Register for our complimentary webinar, Insurance & Cleantech: New Markets for Climate Resilience, on February 11th.
About Cleantech Group
Cleantech® Group is a research-driven company that helps corporates, public sector, investors, and others, identify, assess, and engage with the innovative solutions and opportunities that are related to the world’s massive, and growing, environmental and climate challenges. Our insights and expertise are delivered to clients all over the world through our Research, Consulting, and Events. We have been the leading authority on global cleantech innovation since 2002.