Munich Re predicts insurance demand in the race towards climate neutrality

According to Munich Re, weather-related natural catastrophes such as heatwaves, droughts, wildfires, and floods have made it apparent that climate change is the world’s greatest challenge in the long term.

Related topics:  insuring the planet,  green hydrogen
Tabitha Lambie | Editorial assistant, Barcadia Media
12th September 2022
Green hydrogen

Just over a year ago, heavy rainfall in western Germany and other regions in neighbouring countries triggered extreme flash floods, killing over 200 people. These floods caused €46bn in losses, only €11bn of which was insured.

The likelihood of such an event happening again has increased significantly due to climate change, according to studies conducted by the World Weather Attribution Initiative.

Consequently, Munich Re warns that insurers need to “gear their risk management to this reality.”  

Thomas Blunck, whose responsibilities on Munich Re’s Board of Management include the Europe/Latin America Division, has said that the impact of climate change is “evident” and has been proven “many times over.”

“Given the losses incurred [due to weather-related natural catastrophes], it is necessary to develop a deeper understanding of these events in order to be able to take better precautions. In addition, a combination of greater prevention and a higher level of coverage through insurance is important, with risk-commensurate prices being the prerequisite,” said Blunck.

According to the International Energy Agency (IEA), global investment in renewable energies for the generation of electrical power alone would need to triple from 2022 onwards for net-zero carbon neutrality to be met before 2050.

Ergo, Munich Re predicts substantial business potential will arise from the insurance demand generated by businesses transitioning towards climate neutrality.

It believes green hydrogen, produced using electricity from renewable energy sources, is likely to play an important role in making industrial processes climate-friendly.

Investment banking company, Goldman Sachs claims green hydrogen could satisfy a quarter of the world’s energy needs by 2050. However, since the production of hydrogen requires sizable investments, financiers need to be convinced of the reliability of these new technologies.

Progress has already been made with the launch of the world’s first green and blue hydrogen facility, developed by Marsh in collaboration with insurers Liberty Special Markets, part of Liberty Mutual Insurance Group, and AIG.

As well as providing risk transfer options for all construction and operational phase property damage risks, the facility also offers marine cargo, business interruption, general third-party liability, and contingent delay-in-start-up insurance.

READ MORE: World’s first green and blue hydrogen risk insurance facility launched

However, Munich Re believes more must be done and has thus developed an innovative guarantee cover for hydrogen production plants, through its Green Tech Solutions unit.

Similarly to performance warranty cover for photovoltaic manufacturers, this insurance will considerably ease the financial burden on businesses, enabling them to invest capital into business development rather than guarantee reserves. This will relieve manufacturers, operators, and investors of performance risks.

Munich Re is already talking to potential pilot clients for this solution, which has been coined HySure. 

More like this
Latest from Financial Reporter
Latest from Property Reporter
to our newsletter

Join a community of over 30,000 intermediaries and keep up-to-date with industry news and upcoming events via our newsletter.