A ‘silent’ low-carbon transition is already underway in the insurance sector: LMA

Ahead of the next COP meeting, the Lloyd’s Market Association (LMA) commissioned a report, Underwriting the Transition, where KPMG examined the challenges, risks, and rewards of the low-carbon transition for the insurance sector over the next two decades, focusing on eight key economic sectors in the Lloyd’s market and mapping potential decarbonisation pathways.

Based on KPMG’s expertise and interviews with Lloyd’s underwriters, the report outlines potential abatement levers for emissions reduction between a ‘business as usual’ scenario and a 1.5°C reduction aligned with the Paris Agreement.

Paul Davenport, Finance & Risk Director at the LMA, said, “As the leading global marketplace for complex and specialty insurance, Lloyd’s is a centre of deep expertise, product innovation and capital.”

He continued, “The 55 managing agents who are members of the LMA are already playing a pivotal role in supporting key sectors as they transition, but to maintain this leadership, they need clear insight into the strategic, operational, regulatory and financial risks that must be managed.”

The report emphasises the insurance industry’s crucial role in meeting the Paris Agreement’s goals and highlights that a ‘silent’ transition is already underway as businesses adapt to new transportation, renewable energy, and low-carbon construction materials.

Roger Jackson, KPMG’s Global Insurance ESG Lead, who led the research team added, “Now, more than ever, insurance is needed to support the transition to a low-carbon economy. This report seeks to provide a common viewpoint across the transition sectors that are also key to Lloyd’s underwriters.

“In doing so, it provides deeper insights into the opportunities and risks from transition for underwriters, which supports the insurance recommendations in the recently published ‘Scaling Transition Finance’ report by the Transition Finance Market Review. It’s only by understanding companies’ transition pathways in more detail that insurers will really be able to assist, and in doing so realise the opportunities, as well as risks, of transition.”

The report warns that the ‘silent’ transition and related data challenges could lead to misalignment in products and pricing if these risks are misunderstood.

Insurers already underwriting the transition can benefit from examining how risks are evolving and exploring new opportunities to engage with insureds and increase relevance.

Davenport explains, “The insurance industry, traditionally viewed through the lens of risk management and protection, is a critical partner in this transition. Without insurance, businesses will struggle to achieve their transition goals or build resilience against the impacts of a changing climate.”

“There is clearly more work to be done in this complex and evolving area and it is something that the LMA and KPMG would like to address again in the future to monitor what shifts occur in government policies, regulation and in the portfolios and risk profiles of market participants,” Davenport concluded.

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