The green movement is a product of our collective concern for the earth, global warming, and the future of our planet. Though the movement has been strong for decades, with the environmental protection act rolling out in the ’70s, it wasn't until recently that the need for change became obviously critical. At the same time, manufacturing, energy companies, and what some would now call “bio-hazardous” industries have grown exponentially. For the insurance industry, the energy sector has been a strong market and held a large capacity for growth. Now with social and economic pressures facing the energy sector and its insurers, the landscape of the market has changed significantly. While some may assume that The Green Movement is a threat to the insurance industry, there is quite a bit of opportunity within it as well. As the energy industry adjusts to the needs of society, the insurance industry will also adapt accordingly, and create new policies that represent new needs.
Insurance Industries Drive the Green Initiative
In 2022, insurance companies are more than what they offer, it's what they stand for, too. The pressure to lead social initiatives has increased considerably from stakeholders and customers, especially with regard to climate change. It's more important than ever for businesses to involve themselves with social matters, and the insurance industry is doing exactly that. Not only is it important to maintain involvement with climate protection, but it's actually becoming mandatory. Countries around the world are boosting their environmental regulation policies and with the U.S not being far behind, insurance industries need to adjust their underwriting to reflect these guidelines. Companies are going as far as to refuse to insure certain liabilities that may be detrimental to the planet. More recently, Lloyds of London issues a multi-year plan to stop insuring certain types of fossil fuel companies by 2030. This is likely the start of a chain reaction for insurance companies looking to lead in environmental, social, and governance initiatives.
Insurance companies are also participating in the green initiative through their own policies and practices. Many companies large and small are ditching their traditional paper practices and investing in digital policies and correspondence. Even practices like allowing work-from-home to continue post-pandemic are helping to lower emissions and business environmental footprint. Zurich recently announced its plan to be a zero-emission company. They have been a leader in corporate sustainability and continue to integrate environmental awareness into the foundation of their business.
Insurers understand the large influence they can have on other businesses and the practices of their customers. Choosing to end relationships with clients over lack of sustainability, even if the profit is there, will enhance the importance and action of protecting our planet. Additionally, increasing efforts within the workforce to make large corporations more environmentally friendly is creating a domino effect that has businesses as some of the leaders in the green movement.
Renewable Energy Prompts Rising Prices
Climate change has had detrimental effects on our planet and has also proven to have a strong effect on prices. The energy market has had a difficult few years, with the pandemic most recently making it even more challenging. Many experts discuss the pandemic being the single determining factor in the rise in energy prices for 2021. There was the loss of jobs, delays in manufacturing, and many other unpredicted Covid related challenges. The pandemic has greatly influenced not just the energy sector, but every single industry. Climate change, though, has been a long-term and unwavering factor in the energy industry's volatility.
Renewable energy efforts, although celebrated, have recently been seen as a greater risk than previously thought due to unpredictable weather causing an increase in claims. Insurance considers many factors when determining risk, including past patterns and the potential of the future. Since renewable energy sources are prone to damage from natural disasters, and natural disasters are increasing due to climate change, this green initiative is inadvertently racking up insurance costs. As companies move towards sustainability, there are more areas where potential gaps in risk and coverage could exist in the future. Especially with the violence of the climate right now, insurers are on high alert. Until the sector has a more steady ground in these practices, insurance costs will reflect the instability.
The Future Of Energy Insurance
There is a lot of untapped potential for growth and sustainability within the energy sector. The majority of society has been aware of the importance of environmental protection, but the professional landscape is really just catching up now. With many sustainability changes being recent, this transitionary time is reflected in rising prices, volatile markets, and an overall unpredictable landscape. But, once these practices are more standardized and commonplace, the market is likely to even out and adjust to the needs of modern times.
As we move toward renewable energy, there is a lot of potential for new innovations and equipment in solar, wind, and hydro energy. Improvements to our renewable practices could potentially reduce the risk associated with equipment and help bring prices back down. There will be less volatility once the industry isn't so dependent on oil prices, rigs, and non-renewable energy sources. Additionally, increased coverage options and more access to climate-friendly insurance resources could potentially reduce premiums and soften the market. Experts note that more and more carriers are getting involved in the energy sector. When this happens, costs of excess policies other cost factors decrease as well. As with any industry, there is no guarantee of what's to come in the future for energy insurance. It will depend on how much companies abide by sustainability practices, innovation, and the state of our climate. But, the insurance industry will continue to adapt and lead the best practices for the energy sector, and in many ways, our planet.
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