Geneva Association on Insuring Climate Technologies

The Geneva Association has issued its second report in a two-part series on climate technologies and insurance, titled Bringing Climate Tech to Market: The powerful role of insurance.

This report considers changes to traditional approaches to developing and financing emerging technologies in order to expedite commercialization and scale climate technologies needed to meet global climate and decarbonization targets. The authors find that P&C re/insures need to be engaged from the pre-commercialisation stage to guide risk management, and offer a novel ‘Insurability Readiness Framework’ to help zero in on relevant risks. The report offers recommendations for insurers, investors, climate tech associations and developers, and governments.

“The adoption of climate technologies requires a collaborative effort from industries, insurers, policymakers and others," said Jad Ariss, Managing Director of The Geneva Association. "Insurers are essential for securing financing and managing project risks. By addressing funding gaps and leveraging insurance solutions, insurers can accelerate the deployment of climate technologies and work towards achieving global climate targets.”

“Our Insurability Readiness Framework (IRF), developed in collaboration with a range of partners across sectors, categorises risks into seven relevant areas, aiding stakeholders in framing risks and facilitating dialogue with insurers," said Maryam Golnaraghi, Director Climate Change & Environment at The Geneva Association and lead author of the report. "By identifying risks for which insurability is challenging, the IRF will help reveal when alternative interventions, like public-private partnerships, are required to bring projects to market.”

The reports key findings are that:

1. Technology development and financing is evolving in order to expedite the deployment of climate technologies. Project finance is increasingly being used instead of traditional technology financing mechanisms (e.g. growth venture capital funding) to address project complexities and large capital requirements, even for demonstration and early stage projects. The U.S. Department of Energy’s Adoption Readiness Level (ARL) framework, which identifies 17 risks that hinder the market readiness of climate technologies, provides a useful overlay to traditional technology assessment frameworks.

2. Affordable insurance solutions are essential for getting climate technologies market ready, securing financing and managing project liabilities. Assessing the insurability conditions and developing insurance solutions for new climate technologies is complex and time consuming due to the myriad new risks involved and the lack of historical data. Greater risk sharing among stakeholders in the early stages could lead to the development of structured risk management solutions and better risk allocation among parties based on risk appetite and ability to bear risk, thereby attracting more capital and ensuring optimal risk financing. As the technology matures and deployment increases, more data on the performance and efficacy of risk management strategies becomes available, standards are developed for project replication, and the technology becomes more insurable. This allows insurers to take a greater share of the overall risk pool.

3. Insurability challenges exist but, in general, can be overcome. While there are issues associated with the common insurability criteria for emerging climate technologies, they can generally be addressed. Specific risks may not be insurable through the commercial insurance market and may instead require other interventions. If not solved, such risks could hold back the scaling of the technology indefinitely, as has been the case for carbon management technologies.

4. Early engagement of re/insurers at the industry level from the demonstration and early deployment stages of technology development would offer a number of benefits, including increased transparency and enhanced knowledge about the untested risks; convergence on data needs and monitoring requirements to initiate the development of databases for risk assessment in the industry; strengthened collaboration among stakeholders to develop risk management strategies for different aspects of the technology (e.g. equipment design); creation of ‘pools of projects’ to spread risks; and identification of unique insurance needs on a tech-by-tech basis to motivate insurance product innovation. This would also expedite the co-development of risk management standards, guidelines and codes of practice as projects reach the desired commercial scale, which is fundamental for project replication for wide-scale deployment.

5. At the project level, very early engagement re/insurers (irrespective of the stage of technology development), would ensure that risks are considered, assessed and managed more holistically to enhance the insurability and potentially shorten the due diligence period for obtaining insurance, with subsequent impacts on financing and execution. Traditionally, re/insurers are contacted after the project has been fully designed for development at an approved site, to arrange for insurance needs to secure financing and for execution. By engaging early, e.g. from the project feasibility phase when the site is selected and approved, re/insurers can provide important feedback on critical decisions, such as where and how to build facilities to maximise their insurability against extreme weather events over the project’s life cycle.

6. The novel ‘Insurability Readiness Framework’ (IRF) allows climate tech risks to be viewed through an insurance lens. The IRF translates the risks in the ARL framework into seven categories: 1) technology risk; 2) project information and organisation risk; 3) legal, finance and compliance risk; 4) physical risk at project location; 5) business interruption and supply chain risk; 6) long-term risk; and 7) environmental, social and governance risk. The framework enables more informed conversations among climate tech stakeholders and re/insurers for framing risks, identifying data needs, exploring insurability conditions, and considering risk management strategies. It also brings focus to the most challenging risks from an insurability perspective. The authors demonstrate its use in the report by applying it to two emerging technologies: green hydrogen and carbon management.

Source: Geneva Association, https://www.genevaassociation.org/press-releases/insurers-are-essential-rolling-out-climate-tech-needed-industries-decarbonise-finds