Energy

In this chapter of our Annual Insurance Review 2023, we look at the main developments in 2022 and expected issues in 2023 for Energy.

Key developments in 2022 

In our last Annual Insurance Review, we anticipated a number of developments in the energy insurance market for 2022. As a leading theme, we predicted a move to greener energy, noting especially insurers' net zero targets, a shift towards more sustainable energy sources, such as hydrogen, and a growing focus on ESG. 

Market trends in 2022 have shown that climate change management continues to be a central theme for insurers. In an endeavour to tackle the accelerating consequences associated with climate change, insurers are increasingly adopting net zero strategies. A prime example of this is the UN-convened Net Zero Insurance Alliance, which is currently joined by over 29 leading insurers who have all committed to the goal of achieving net zero GHG emissions by 2050 and other targets set by the Paris Agreement on Climate Change. 

In an effort to tackle the effects of climate change, insurers are also refining their business offerings by expanding into the sustainable insurance market. In an innovative move, Marsh launched the world's first insurance for hydrogen projects in August 2022. The product was developed in collaboration with AIG and Liberty Specialty Markets and provides up to $300m of cover in the start-up phase of hydrogen ventures. The aim is to provide adequate insurance for greener technologies which is still lacking and holding up investments. 

Tying in with this push for sustainability, ESG considerations now constitute another commercial focal point. Shareholders, and the insurance industry as a whole, place more and more importance on insurers' approach to ESG as reported by Fitch Ratings. Insurers in the energy sector have been reacting to this trend by refining their ESG strategies in a variety of ways. Notably, 62% of companies in the reinsurance sector have introduced coal exclusion policies, while 38% have oil and gas exclusions, setting a clear tone for their ESG focus moving forward.  

What to look out for in 2023

 A continued strive for greener energy and the expansion of sustainable insurance offerings are to be expected in 2023. Likewise, the adherence to ESG strategies will remain in the spotlight. 

Insurers will continue with their efforts to tackle the consequences of climate change. In addition to pledging themselves to UN-convened (or other) initiatives, insurers also set their own internal sustainability targets which they will need to keep working towards. For instance, Allianz aims to phase out coal-based business models across its proprietary investments as well as property and casualty related insurance portfolios by 2040. Zurich Insurance Group, in turn, is aiming to reach its net zero target in operations as early as 2030. We are likely to see more insurers setting similar goals for themselves accompanied by appropriate changes to their insurance offerings, which will translate into stricter terms in relation to "non-green" solutions.

In particular, the increasing pressure to move towards renewable energy sources and away from fossil fuels, means that insurers will need to adjust their underwriting portfolios to reflect this transition. In 2023, especially look out for the launch of Marsh's new hydrogen project insurance facility and its impact on the insurance market as it gains momentum over the first months of its roll-out. It is to be anticipated that other insurers will join this sector and announce their own initiatives related to hydrogen in the coming years.

Finally, also expect a continued shift in insurers' business strategies as a response to the growing importance of ESG. This can already be observed as major market players, such as Munich Re, Swiss Re and Hannover Re announce their exit of the oil and gas project sector. These types of moves are to be anticipated as the insurance market is faced by increasingly restrictive ESG pressure in relation to investments and insurance.  

Written by Karolina Lewicki.

Download our full Annual Insurance Review 2023 for more insights.