Market Forces

Insuring the transition: Underwriting as a tool on climate

By / Bio / Published: February 20, 2025

This blog was authored by Andrew Howell, Senior Director of Sustainable Finance at EDF. 

This is the fourth blog in a multi-part series on how insurers can support decarbonization and the energy transition.

More than any other, the property and casualty insurance industry sits on the front lines of climate risk. Global economic losses from natural disasters in 2023 are estimated at $280 billion, with insured losses at $110 billion. So far in 2025, the economics of insurance looks set for what may be an even more challenging year, as the effects of a warming planet continue to be felt.  

But insurers are not only involved after climate-change-fueled disasters hit as funders of the recovery. Amidst the mounting impacts from extreme weather, the insurance sector is also emerging as a potentially important player in supporting and accelerating a transition to a lower-emissions future. In a series of blogs on insurance and the energy transition, EDF has discussed various ways in which the insurance industry can respond to the challenge of climate change. These include requiring climate-friendly rebuilding, and adapting insurance tools to accelerate technological innovation. To this can be added a third lever: using the underwriting process to accelerate customers’ energy transition.    

How to bring down insured emissions  Read More »

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Is California becoming Uninsurable?

By / Bio / Published: January 17, 2025

This blog was authored by and Carolyn Kousky, Associate Vice President for Economics and Policy, EDF.

As wildfires burn across L.A., thousands of residents are about to face the heart-breaking, confusing, stressful, and difficult process of rebuilding after disaster. This recovery process can be incredibly costly, and the majority of Americans do not have sufficient resources to fund the recovery on their own. After losing their home, many are not in a position to take on additional debt, and federal disaster aid is often insufficient – indeed, it was never designed to make people whole after a disaster.

Unsurprisingly, then, our own research confirms that households with insurance tend to have better recoveries. In a recent paper, we document that households with insurance are less likely to report high financial burdens in both the short and long term, and they are less likely to have unmet funding needs. We also find in our work that when more households have insurance, it has positive spillovers for local economies, with visitations to local businesses increasing. 

These important financial benefits are at risk when households cannot find or afford insurance. Since the devastating wildfires of 2017 and 2018–the state’s most damaging until the recent blazes–the California insurance market has been under stress, putting more residents in that position. In response, the state has recently adopted regulatory reforms that are important steps toward improving the California insurance market. But with the ever-increasing risk of climate disasters, can insurability be preserved?

We summarize the dynamics in the California insurance market that have been unfolding through six sets of graphs, providing context for the current insurance issues facing the state as recovery begins. 

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Unlocking Insurance to Rebuild Stronger and Greener after Disasters

By / Bio / Published: December 16, 2024

This blog was authored by Talley Burley, Manager, Climate Risk & Insurance and Carolyn Kousky, Associate Vice President for Economics and Policy. 

This is the third blog in a multi-part series on how insurers can support decarbonization and the energy transition. This series explores opportunities and challenges and highlights emerging insurance innovations that can drive emissions reductions. In this post, we discuss how insurance can support climate-friendly rebuilding after a disaster.   

Professional Workers Installing the Window Frame

In the United States, buildings account for more than a third of national CO2 emissions and many buildings are not able to withstand the impacts of future climate extremes. As the risks of climate disasters grow, our buildings require updates to decarbonize and improve energy efficiency and better protect inhabitants from intensifying weather-related events. State and local building codes are important tools to shrink emissions and improve resilience for new buildings. But 75% of existing residential buildings will still be standing in 2050, which means these structures will need retrofits in the coming years to improve efficiency and resiliency.  

The rebuilding process after a natural disaster can be an opportunity to build back stronger and greener. Insurance can help to drive climate-smart upgrades and support retrofits that lead to savings over time from lower future losses and reduced energy use. Unfortunately, too often post-disaster rebuilding proceeds without these upgrades, replacing the structure and its components exactly as it was before. This is due to a variety of factors: high upfront costs, households lacking information on what changes to make, a shortage of appropriately trained builders or contractors, or concern that changes to the building will slow the recovery process. Insurance can also be a barrier, because of common restrictions that require covered repairs to restore the original structure.  Read More »

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Insured solutions: How insurance-based tools can unlock climate tech

By / Published: October 30, 2024

This blog was authored by Peter Tufano, Baker Foundation Professor at Harvard Business School and Senior Advisor to the Harvard Salata Institute for Climate and Sustainability, with support from the Environmental Defense Fund, including Andrew Howell, Senior Director for Sustainable Finance.  Any references below do not constitute an endorsement of the firms or products mentioned.  

This is the second in a multi-part series on how insurers can support the energy transition. The series explores climate-related opportunities and challenges and highlights emerging insurance innovations. This will help us build a greater understanding about how the insurance industry can support emissions reductions and new climate solutions. In this second post of the series, we discuss how insurance can support the emergence and scalability of clean tech solutions and innovations.

To combat climate change and adapt to a warming planet, we need new technologies that have yet to be invented, piloted, or commercialized. According to the International Energy Agency’s 2020 estimates for its Sustainable Development Scenario of net-zero by 2070, nearly three-quarters of the innovations needed to reduce emissions by 35 gigaton (billion tonnes) per year by 2070 are still far from commercialization. If we include innovations to help us adapt to the changing world, the technological gap is likely much larger, with a recent Global Adaptation & Resilience Investment (GARI) working group study suggesting that only 11% of firms offer “adaptation solutions” products. This call for innovation may not sound immediately relevant to the insurance industry, but it is.  

Conversations around insurance and climate change typically focus on how insurers can reduce emissions from firms that they finance or insure (in their roles as investors and insurers, respectively). They examine how insurers measure climate risks and signal these risks through premia they charge, or how insurers can make coverage more available and affordable as climate intensifies extreme weather. But insurers in the climate space have another role: to support needed technological innovation through “insured solutions.”   

How can insurers help support innovators? Surely, it’s not possible to “insure” the success of new ventures? Correct! But to make projects easier to finance, insurers can derisk climate innovations by applying risk engineering approaches and offering new contracts to offload certain risks.  

  Read More »

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The Power of Electricity Modeling in the U.S. Clean Energy Transition

By / Bio / Twitter profile / Published: September 17, 2024

The journey toward a clean energy economy is complex and filled with technical, economic, and social challenges. Electricity models are key tools for driving this transformation, providing precision and insight into the potential outcomes of energy policies and technological shifts. At the Environmental Defense Fund (EDF), we are working to make these tools more accessible through the U.S. Model Intercomparison Project (MIP), which brings together leading developers of open-source planning models to help steer the nation toward a sustainable energy future.  Read More »

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How insurance innovation can drive decarbonization

By / Bio / Published: September 10, 2024

This blog was authored by Talley Burley, Manager, Climate Risk & Insurance; Carolyn Kousky, Associate Vice President for Economics and Policy; and Leslie Labruto, Managing Director, Sustainable Finance. 

This is the first in a multi-part series on how insurers can support the energy transition. The series will explore opportunities and challenges and highlight emerging insurance innovations. This will help us build a greater understanding about how the insurance industry, long overlooked as a potential core contributor, can drive emissions reductions. In this first post of the series, we discuss tools that are available to insurers to support the energy transition. 

You’ve heard this before. Climate change-driven events — wildfires, hailstorms, tornadoes, hurricanes, and floods — have devastated lives and communities across the country, straining local economies and households as infrastructure, homes, and other personal effects are damaged and destroyed. Mounting costs from extreme weather events have significantly impacted the insurance industry, leading to rising costs and leaving many without sufficient insurance coverage to rebuild. In 2023 natural hazards accounted for $250 billion in economic losses, with insurers and reinsurers paying $95 billion globally. According to a report by SwissRe, insured losses from natural hazards have grown by about 5-7% annually since 1992. Human-driven climate change will continue to lead to more intense and frequent natural hazards. Global greenhouse gas emissions have increased by about 8% since 1990, and today those emissions are the highest they have been in human history. Without significantly greater efforts to reduce global emissions, climate change will only continue to drive costs and strain the insurance sector.  

What will it take to reverse these trends? Transformational action and an all-hands-on-deck approach from market sector forces and actors is needed. This includes the insurance industry. While insurance plays a vital role in supporting disaster recovery and resilience, the insurance sector also has a variety of tools and levers it can use to drive the adoption of low-emission, energy-efficient practices.  

As the insurance industry faces a period of unprecedented disruption in the face of climate change, insurance markets must evaluate, test and learn from a series of six levers that can make them part of the solution, while also helping their firms, their clients, and their communities remain leaders in innovation and competitiveness.   Read More »

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