Gallagher Re, a reinsurance brokerage, presents a compelling perspective on the importance of building resilience within the insurance sector. The company emphasises that resilience is not merely a theoretical concept but a practical necessity, especially in the face of increasing climate-related risks and evolving market dynamics.
The rationale for resilience
Resilience is positioned as a critical factor for both insurers and reinsurers. Gallagher Re draws on its extensive experience to highlight how climate and sustainability are deeply interlinked, influencing risk profiles and operational strategies. The company notes that while climate is often viewed as a physical risk and sustainability as encompassing broader concerns, these domains are fundamentally interconnected and must be addressed in tandem.
Market dynamics and climate impact
Recent market conditions have shown a lower frequency of high-cost natural catastrophe events, resulting in healthier annual budgets for both governments and insurers. This has led to a softening of reinsurance market conditions, supported by increased capital and alternative sources of investment. However, Gallagher Re cautions that annual volatility is expected, and climate change is likely to exacerbate extreme events, shifting their severity, frequency, and geographical patterns. The company underscores the growing insurance protection gap and the need for proactive measures to address both insured and uninsured losses.
Integrating climate and sustainability
Gallagher Re advocates for the integration of climate and sustainability strategies, noting that investing in sustainability is a form of climate change mitigation. Insurance is identified as a vital, yet underutilised, tool for unlocking climate financing, particularly in the energy sector. The company observes that investment in renewable energy projects is contingent upon robust insurance mechanisms, which provide the necessary security for capital deployment.
Practical applications and innovation
The company showcases several practical examples of operationalising resilience:
- Carbon Credit InsureTech: Gallagher Re has supported the development of insurance products for carbon credits, leveraging established practices in credit and political risk to address new sustainability challenges.
- Sustainability Advisory: The firm has advised a major Japanese insurer on opportunities across the transition landscape, including sustainable construction, energy, agriculture, and forestry. This led to the placement of a shared treaty for underwriting decarbonisation and low-carbon solutions.
- Regulatory Advisory: Gallagher Re has provided guidance on the expansion of emissions trading schemes to the maritime sector, helping clients develop risk transfer mechanisms to meet new regulatory requirements.
- Carbon Emissions Accounting Tool: The company has developed an in-house tool for calculating insurance-associated emissions, initially for property portfolios and now expanding to marine, energy, and motor classes.
Opportunities and maturity
Gallagher Re categorises opportunities in sustainability across existing, emerging, and high-priority products. Renewable energy is now considered mainstream, with carriers confident in underwriting these risks. However, nascent opportunities such as biodiversity credits and sustainable aviation fuel infrastructure require further development and market maturity.
Key takeaways
The insurance industry holds a unique and pivotal role in supporting the transition to net zero. By incentivising decarbonisation and unlocking investment through risk transfer, insurers can drive innovation and limit human impact on the planet. Gallagher Re asserts that climate and sustainability must be addressed together, and that doing good for society can also yield positive financial outcomes. The company encourages insurers to leverage existing resources to underwrite sustainability-related opportunities and to embrace their position within the global financial system to support climate financing and societal progress.
