Is climate the single biggest opportunity in insurance?
From floods and rising mercury to cold waves, climate-related events impact the insurance industry in multiple ways. A 2018 extreme freeze in the U.K. led to pay-outs for burst pipes of £194 million over three months. In the same year, an extreme heatwave saw over 10,000 homes in the U.K. claim for damage caused by subsidence, exceeding £64 million.
Climate is the “ultimate systemic risk” and represents the biggest single opportunity the insurance industry has ever seen, per CEO of Lloyd’s. If the transition to a low-carbon economy is ill-organized, the value of assets in which insurers invest will likely plummet. Swiss Re, for instance, switched its asset base to ESG standards, staying invested while picking only the best 50% in terms of ESG.
Recently, the Lloyd’s re/insurance marketplace announced the insurtechs joining its eighth cohort of the Lloyd’s Lab. These insurtechs were selected basis solutions around four key themes, including decarbonization and climate change.
The climate mavericks that have been selected for the cohort are:
Kita, which provides insurance for the voluntary carbon markets to enable more high-quality carbon removal solutions.
Persefoni, which is a SaaS platform that enables companies and FIs to easily meet stakeholder and regulatory climate disclosure requirements and requests.
Kettle, which is a Bermuda-based reinsurance MGA that uses deep learning and reinsurance, to drive better climate solutions.
There is a substantial pool of modeling skills, data and capacity in the insurance industry that can be used to accelerate the spread of nature-based solutions. This market has the potential to provide up to 30 percent of the climate mitigation required to limit global warming to 1.5 degrees C. Kita is using parametric insurance products to guarantee the quality and delivery of carbon offsets and negative emission technologies. It is developing insurance for a broad spectrum of high quality carbon removal schemes, and is focused on helping buyers and sellers meet their carbon delivery targets and net zero promises by de-risking the projects and technologies of the neg-tech market.
Increasing levels of regulations are creating opportunities for newer startups to bring solutions to market. Asset managers, banks and FIs need to comply with the Greenhouse Gas Protocol and require to calculate their financed CO2 emissions footprint in an auditable manner. Consequently, start-ups such as Plan A, South Pole and Watershed have emerged. Persefoni, sensing this opportunity, launched a solution to let customers calculate their financed emissions footprint.
Kettle is a re-insurance tech startup that applies deep learning techniques to effectively protect people against accelerating climate change risks. It is structured as a reinsurance Managing General Agent. In 2021, Kettle’s model predicted areas consumed by the Dixie and Caldor Fires as some of the most dangerous parts of California. Kettle’s technology and proprietary algorithms use terabytes of data from public and private data sources, such as NOAA weather data and NASA’s MODIS and LIDAR satellites.
Global climate-related fintech funding surged in 2021 to hit $1.2 billion. VC funding was three times higher than every other year combined. Green fintech funding is soaring, and the pace of growth is showing little sign of abating. 29 climate tech cos achieved unicorn status in 2021, making up 60%+ of all-time climate unicorns and ~6% of overall new unicorns that year. Carbon accounting and climate risk management attracted the most funding last year.
At the industry level, strategies for climate change are relatively immature. Nonetheless, net zero approaches are emerging across a range of dimensions. There are a number of strategic choices which are needed, such as the target markets that can generate positive impact while leveraging opportunities to influence the transition. It also necessitates identifying appropriate levers to enable successful insurance product innovation at scale, based on improvising the underwriting approach, risk advisory services and partnerships.
Originally published at: https://dailyfintech.com/2022/04/07/lloyds-labs-latest-cohort-tackles-climate/