Collaboration between risk managers and insurers crucial to tackling transition risks

With growing urgency around sustainable buildings, transportation and technologies, the insurance sector confronts unprecedented change, adapting to a future shaped by climate change.

In an exclusive interview with AIRMIC Today, Paul Davenport, finance and risk director at Lloyd’s Market Association, and Roger Jackson, sustainability insurance lead at KPMG, unpacked the challenges of transition.

One key transformation has been the evolution towards full-scale commercial use of emerging technologies.

“We're moving into a world shifting from research and development into using these new fuels, materials and technologies commercially,” Jackson noted. “That’s a change from an insurer perspective, as risks associated with them haven’t had the chance to bed down.”

This expedited shift brings complexities insurers must navigate to remain effective. Davenport emphasised the need for insurers to adapt to sector-specific changes, pointing out, as an example, that “the fuel changes involve very different risks,” whether battery, ammonia or sustainable aviation fuel.

“These require different infrastructure and different changes at different paces. If these transitions were unfolding naturally, they’d take decades. Accelerating them introduces a whole new set of risks."

Jackson: “The risk environment is changing faster than ever before, so excellent risk management and underwriting skills will become even more critical to succeed.”

The transition's scale is staggering, encompassing road, sea and air transport sectors, requiring massive infrastructure overhauls.

“Large infrastructure projects bring enormous risks,” Jackson explained, highlighting battery and hydrogen fuel as particularly perilous. He compared these efforts to ongoing projects such as the HS2 rail project, underscoring logistical hurdles ahead.

Davenport added perspective, explaining: “Supply chains are affected, and there are multiple knock-on effects of the transition that will start to affect people and communities differently worldwide.”

Collaboration as a solution

Both experts stressed collaboration as the linchpin of an effective insurance market in transition, and Jackson urged insurers and brokers to lean in.

“There needs to be more collaboration across the whole placement process from corporate transition plans to their internal risk managers, and on to brokers and underwriters” he said.

“There’s a huge risk of asymmetry of data as corporates and risk managers might not fully understand their own transition plans or how these translate into insurance needs.”

Davenport echoed this sentiment, stating: “Insurers need to be involved in assisting corporates with their transition plans more broadly from a risk management perspective, such as the setting of standards and safety protocols for new technologies.”

Brokers have a significant role in navigating transition risks, acting as facilitators between corporates and underwriters.

Davenport: "Insurers need to be involved in the setting of standards and safety protocols for new buildings, transportation and technologies, to ensure the changing risk profile due to transition can be commercially priced.”

“They have spotted areas where there’s more repeatable business that can be set up as a facility for the market,” said Jackson. He cited the Lloyd’s Lab as an example of insurers addressing transition risks innovatively, albeit on a relatively small scale.

Davenport also emphasised the importance of simplicity, explaining efforts to streamline data requests for environmental, social and governance (ESG) assessments: “We’ve worked on defining a shortlist of data points relevant to ESG aspects to bring consistency and avoid clients being asked the same questions in different ways repeatedly.”

Education and generational challenges

Transition requires a concerted effort to educate stakeholders across the insurance industry.

Jackson observed: "The whole transition topic is huge and complicated, and there’s a generational aspect; as transition will be far more relevant in terms of the career of a younger underwriter who will therefore need to be more attuned to these issues.”

Davenport projected this over a longer timeline, noting: “Underwriters who are currently five years into their careers will be underwriting through 2050 and beyond. They’ll need to balance dealing with both the physical risks of a warming planet and the transition risks themselves."

Pricing transition risks remains a thorny issue, as Davenport explained: “What underwriters like to have is data, history and track records, which isn’t readily available for transition risks.” 

“As a result, scenario-based analyses, with higher uncertainty and consequently higher premiums often prevail."

Jackson highlighted the consequences of inadequate collaboration: “If the insurance market doesn’t address these challenges, corporates may self-fund or use alternative mechanisms, bypassing traditional insurance altogether.”

Both agreed that insurers and brokers can serve as partners in executing corporate transition plans. Davenport spoke of the historical impact of such involvement: "When insurers have been involved in setting standards, such as with building sprinklers, outcomes have been better for both client and insurer. It’s the same now, just with different technologies."

But early involvement is crucial. “Insurers can de-risk projects from the start, lowering costs and preventing delays caused by overlooked risks,” Jackson noted.

As transition risks evolve, insurers, risk managers and brokers must recalibrate their approach from traditional coverage to a more nuanced partnership model. This is not merely a technical or financial challenge but a collaborative one, where open communication, shared standards and proactive engagement will define success in managing the risks of tomorrow.

Paul Davenport is the finance and risk director at Lloyd’s Market Association. He can be reached at Paul.Davenport@lmalloyds.com

Roger Jackson is the sustainability insurance lead at KPMG. He can be reached at Roger.Jackson@kpmg.co.uk

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