Andrew Herring, the Chief Executive Officer of Energy and Power at Marsh Specialty, has called for a transformative approach within the insurance industry to address climate change risks. He further argues that rather than just reacting to the latest truth, the insuring sector needs to positively work together with the energy industry. Gallagher’s just-released 2024 insurance market report paints a jarring contrast. It bodes ill when it illustrates a negative premium rating for what are called “clean, well-running accounts.”
In early July, Energy Insurance London hosted a discussion where Herring shared some of these perspectives. In parallel, some 50 Extinction Rebellion activists staged a demonstration outside the venue. The environmental movement supports an immediate and major cut in our dependence on hydrocarbons, calling for leaders to act urgently to combat the climate crisis.
Industry Pressures and Emerging Trends
Competition is growing among insurers that are focusing on this emerging sector, according to the Gallagher report. Warning Signs Insurers are engaged in a cutthroat competition for market share. Consequently, they are more often pursuing “clean, open running accounts.” State Farm’s agency principal Ed Pearcey praised the report’s discoveries, stressing its importance in today’s insurance environment.
Herring pointed out that the insurance industry often tackles climate change risks in isolation, failing to fully integrate collaborative approaches with energy providers. He stated, “We still haven’t got the message right about the energy transition.” Herring emphasized the need to break insurers’ old payout models. He claimed that a partnership model would better address the intricacies and ambiguities associated with climate-related hazards.
“Moving from payout to partnership, working more closely with our clients to determine what they need,” – Mike Gosselin
Gosselin’s comments during the panel discussion drove home this idea even more. He noted that the escalating extreme weather events pose a significant threat to civilization, one that insurers must acknowledge and prepare for.
Risk Management and Climate Adaptability
Yet the past few years’ record of extreme weather events raises the stakes for rapidly adapting insurance models. On May 1, 2019, a supercharged supercell deposited a devastating hailstorm across western Texas. In total, it damaged more than $70 million worth of solar installations at the Midway solar farm and affected over 400,000 solar panels. It’s been enough to demonstrate, through these events, the critical need for customized underwriting data. It is especially useful for navigating unknowns in our ever-evolving space.
Claudia de Vries, Head of Sustainable Development Solutions at Swiss Re, has highlighted the need to use tailored, granular data from past events to inform underwriting. With this approach, insurers can start to better understand and ultimately mitigate risks to develop products that are more efficient and effective for the growing renewable energy market.
“Insurance is also a really good way to provide stability for longer-term investments [and] the next shock to the energy industry won’t necessarily come from falling oil prices, but from our failure to adapt,” – Mike Gosselin
Gosselin reiterated passionately that insurers need to be at the table and be involved in risk reduction. He thinks their involvement is vital throughout the whole value chain.
The Future of Energy Insurance
As conversations around climate change continue to grow louder, Herring said many insurers were still ready to jump into the renewable sector. “Lots of insurers want to get into the renewable space to offer tailored insurance products to energy companies, and we have a very opportunistic market,” he stated. This willingness can and should result in new inventive answers that serve the dual purposes of accomplishing energy transition objectives while satisfying insurance company needs.
Challenges remain. Extinction Rebellion activists have targeted industry leaders for supposedly practicing climate annihilating behavior. They argue that the status quo of approving more projects that expand fossil fuels further deepens this crisis.
“Escalating extreme weather poses a grave threat to human civilization, and insurers have calculated the extent of the damage as well as anyone,” – a representative of Extinction Rebellion
Environmental activists and industry leaders are both interested in continuing this important conversation. Their partnership can help bridge the gap and result in benefits for both industries.