London Insurance Market’s solutions for tackling climate change

Extreme weather events, rising sea levels and shifting temperature patterns: the financial consequences of climate change can be immense for individuals and global communities. The London Market’s expertise provides a buffer against these uncertainties for clients in the UK, the US and globally by providing financial protection and promoting climate change adaptation.  

Innovating solutions for climate change  

Climate change is an area where established knowledge meets new thinking. Even though the idea of using insurance solutions to tackle climate change sounds relatively new, the industry has been protecting people from the consequences of climate change – extreme weather events and related catastrophes – for years.  

The insurance industry not only protects society against physical risks, it is actively looking to leverage its specialist knowledge to innovate solutions for climate change.   

Insurance can promote climate change adaptation and transition activities. Climate risk analytics and forecasts conducted by insurers enable them to encourage and reward policyholders for adopting risk-mitigation measures, such as implementing flood-resistant building techniques.  

As insurers integrate climate considerations into their underwriting processes, they influence financing options, land-use planning, and infrastructure development. For instance, speciality coverage in renewable energy projects could help widen the funding available as well as bring down the cost of construction.  

Climate change brings physical risk, financial risk as well as transition risk. Businesses are increasingly seeking expertise that can help them navigate risks brought by the evolving climate-related laws and regulations. The insurance industry is well-positioned to offer advisory services to help clients identify transition risks and fulfil the burgeoning climate-related disclosure requirements.  

Where is the best place to find these solutions? 

Insurance solutions for climate change involve a high level of specialist knowledge. The London Market has a reputation for being the centre of global risk transfer innovation and has historically been a pioneer for new product development and managing emerging risks. It already possesses the know-how to assess and insure extreme climate events. Combined with the London Market’s offer in analytics and risk advisory, it is uniquely positioned to offer innovative yet robust insurance solutions to the world. 

The London Market Offer 

• Heritage: The London Market is the world’s largest commercial and specialist insurance market. From the 17th century until today, the London Market has developed into a unique hub that houses the most sophisticated ecosystem of insurance businesses, expertise and capital. 
• Capital: London is the place to bring large, complicated risks that would be difficult to insure elsewhere. Very few markets are able to cover the catastrophic consequences associated with extreme climate events. London’s unrivalled capital volume and flexibility make it possible to take on these risks and pay out claims as required.
• Knowledge & tools: The London Market houses the knowledge and sophisticated risk assessment tools to identify risk areas and forecast potential climate-related losses. Such knowledge can also be applied to develop preventative measures and financial solutions for transition activities. 
• Unparallel reach: Every one of the top 20 global insurance and reinsurance firms has a presence in London. London Market firms operate in 200+ countries worldwide. The London Market understands different local customers’ needs.  

A longstanding service provider of the US 

The US is the largest market for climate risk-related insurance services by demand. Yet local US insurers cannot always take on the large complex risks associated with climate change.  

This is when the London Market comes in – it fills the gaps where local US insurers find it challenging to insure. The London Market is the largest writer of US excess and surplus (E&S) lines insurance – the segment of insurance in which the financial risk is too great or too uncommon for a regular insurer to take on. US$15bn of direct premiums was written by the Lloyd’s Market, accounting for 16% of the total US surplus lines market. 

From floods, hurricanes to wildfires, the London Market has a strong track record in helping US businesses and individuals to manage climate-related risk.  

As climate change becomes a global priority, the role of insurance in fostering resilience and sustainability will only become more critical.

Source: The London Market Group