By: Linda Freiner, Group Chief Sustainability Officer, Zurich Insurance Group

We are already paying a heavy price for climate inaction. Record-breaking flooding, heatwaves, droughts and wildfires are having disastrous humanitarian and financial impacts.

Due to global warming, our climate risk models show that these natural hazards and severe weather events are becoming more frequent and severe. Insurance can provide protection when these climate risks materialize. But growing climate-related losses are making it more difficult and expensive to find an appropriate level of insurance coverage for households and businesses. The affordability of insurance is becoming a critical topic.

This climate protection gap – the potential costs to an economy due to climate-related losses not covered by insurance – is growing. In the EU, only about a quarter of climate-related catastrophe losses are insured. But this figure is far higher in developing countries where the protection gap looks more like a chasm.

In response, we believe that collective efforts need to look in two directions. We must look to the future by enabling an economy-wide transition to net-zero; and focus on the present by helping society to adapt and become more resilient to climate risks. And the insurance industry is well-placed to support with both priorities.

Insuring the transition

The net-zero transition will require investments into new technologies, new processes, new measures and the development of new infrastructure. This will result in exposure to a range of new risks, translating into operational and business challenges for the emerging technologies, which may even exceed the risk tolerance of investors and creditors. The insurance industry’s risk-transfer solutions will be vital in this new world. According to recent research, at least USD 10 trillion of insurance cover will be needed to decarbonize the energy, transport and building sectors – from insuring the construction of offshore wind and solar farms, to the provision of electric vehicle cover and heat pump warranties.

In addition to providing insurance capacity, insurers can also utilize their risk management expertise to help reduce uncertainty and manage risks as industries adjust their business models to decarbonize their products and services. This will help to mobilize the capital required to enable the net-zero transition.

At Zurich, we have upgraded our underwriting capabilities and aligned our underwriting appetite to a net-zero future. This has allowed us to design new insurance products and services that support green technologies and infrastructure, which are critical for the transition. Besides providing coverage for renewable energy projects, we recently launched an industry-leading clean hydrogen insurance facility to support the growth of this fossil fuel alternative. We also insure carbon capture technologies and lead the way in the insurance of mass timber structures – a sustainable building material that has significantly lower emissions than concrete and steel.

Financing the transition

In addition to insuring the transition, insurers can also help to finance it. The insurance industry manages trillions of dollars in assets globally. Like our peers, Zurich is channeling a growing number of these funds toward scaling climate solutions through the purchase of green bonds and various impact investments.

As leading sustainable real estate investors, the insurance industry can also directly decarbonize the built environment, which accounts for about 37 percent of global carbon dioxide emissions. Insurers can transition their global real estate portfolios toward net-zero by developing and investing in certified green buildings.

Making society more resilient

To combat the climate risks that impact us today, insurance can contribute with what we do best: risk management. Insurers can help businesses, governments and society prevent and adapt to the physical impacts of climate change. As risk managers, we have the knowledge, historical data, expertise, and capabilities to play an important role in enhancing resilience to climate change, which will be critical to economic success and social wellbeing throughout the transition.

Zurich’s specialized risk advisory business, Zurich Resilience Solutions, is a good example. Our risk consultants help customers to anticipate, prevent and adapt to current and future climate risks. With a data-driven approach, they provide detailed analysis that identifies and quantifies a customer’s specific exposure and vulnerabilities to climate change, as well as actionable options to build greater climate resilience.

The response to rising climate risks will require profound changes. But the insurance industry has a strong track record of helping to transform society and enabling change, and it continues to have an essential role in the global economy today. By collaborating with governments, regulators, financial institutions, businesses and other climate-focused institutions, the insurance industry can make a significant difference in the transition.