Aon’s Zakhary: Industry must seize “immeasurable opportunity” from energy transition

Insuring the transition presents an immeasurable premium and revenue opportunity for the sector, according to Sherif Zakhary, CEO of Aon's Strategy and Technology Group (STG).

Speaking as part of a panel discussion in the latest edition of The Insurer TV’s Prospective programme, Zakhary said the adoption of new products and risk categories would ultimately enable the insurance sector to expand.

To do so, Zakhary highlighted the need for the industry to participate in the development of technologies which will enable the transition.

“Innovation leads to relevance and strengthens our position and role in the overall transition economy,” he said.

This innovation needs to start with an assessment of the risk and resilience of physical assets, which is then expanded to take a view of how that risk may evolve within the transition economy, Zakhary explained.

“As we move towards understanding and bringing in more of a fact- and data-driven approach to understanding risk – and being able to assess not only the risk but also the opportunity – we continue to believe that academia will play a major role,” he said.

The discussion was centred around the findings of a new report by Aon – Transformative Trends: An Opportunity to Create New (Re)Insurance Markets.

The report highlighted 10 transformative trends that are reshaping the global risk landscape, presenting an opportunity to generate billions of dollars in additional premiums for proactive insurers.

While the report touches on several sectors and trends, the panel focused its discussion on the opportunities and challenges presented by climate change and transition risk.

Emerging risks

Wouter Bosschaart, director and energy transition lead in Aon’s STG, said emerging technologies such as carbon capture, utilisation and storage, and the use of heavy industries in transport, come with a new set of risks.

“That's where the insurance industry comes into play – a role in de-risking those and making sure that the capital flows in the right direction.”

He highlighted carbon capture, utilisation and storage as one example of where the insurance sector can play a role.

“There are about $180bn in investments going into carbon utilisation and storage solutions up until 2030. So, all in all, it should pose a giant opportunity for the insurance industry.

“But it's by no means an easy solution – there are problems and unknowns around carbon capture, utilisation and storage,” he said.

Bosschaart said the impact of climate change on the broader risk landscape was “almost immeasurable”.

“Collectively our industry is really well-positioned to start to consider and model the factors so that we can take a data-driven approach to the challenge, ultimately drawing in more capital to help fuel the innovation that helps us get closer to the net-zero objective.”

When it comes to incorporating net-zero and transition objectives into underwriting, Bosschaart said the “wrong way would be to step away and think it’s too difficult”.

He added: “Traditionally, there has been no appetite, a tendency for the industry to say ‘we don't understand the risk’. The right way is to join forces with the industries actually developing those solutions, getting the right data sets, the right talent to interpret those data sets and the right people to make sure that you understand what's going on, what's happening on the innovation front.

“The industry needs to step forward, and join the value chain in making sure those innovations and technologies can actually happen.”

At present, Bosschaart said there is a need for more capacity to support renewable energy risks and the energy transition.

“Is there enough capacity? The short answer is no. I think a lot of carriers are wrapping their heads around what it means to step into those markets. So, there's definitely a need for capacity, matched by sufficient skill to understand the risks.”

Developing technology at scale

Andrew MacFarlane, head of climate at Axa XL, said insurance has a key role to play in ensuring the global economy continues to function.

He acknowledged the need for capacity in certain areas such as carbon capture and storage. However, he said the understanding of the risk needs to improve before meaningful capacity can be deployed.

“It's about how we are able to develop those skills and capabilities to allow that technology to develop at scale. This is an important objective for us as an industry in the coming years.”

MacFarlane highlighted that those communities which have contributed the least to the impact of the changing climate are typically ones that are going to be affected the most.

“Ensuring that the insurance industry has the expertise and the capacity available as these technologies develop and scale and move into the areas beyond the developed world is important,” he said.

And to do this he said the industry must address the talent challenge.

“People are looking for a purpose in their job more than a way of just making a living. The industry has an opportunity really to demonstrate what we do, connect to that purpose and attract and retain the talent to help solve these problems around the transition.”

Watch the full 25-minute studio panel discussion with Sherif Zakhary, CEO of Aon's Strategy and Technology Group (STG); Wouter Bosschaart, director and energy transition lead in Aon’s STG; and Andrew MacFarlane, head of climate at Axa XL for more insight on:

  • What role the can industry play in de-risking the process of transition?
  • Can the industry meaningfully work together on its net-zero journey following the demise of the Net-Zero Insurance Alliance and what does this mean for collaborative action moving forward?
  • Why must the industry take steps to equip the current workforce to better respond to the challenges posed by climate risk?
  • Other key findings from Aon’s new report – Transformative Trends: An Opportunity to Create New (Re)Insurance Markets.