As extreme weather events grow more frequent and severe, insurance is emerging as an unlikely sustainable investment opportunity. Global natural disaster losses now top US$400 billion annually – yet only about 30% of these losses are insured*. This vast protection gap creates fertile ground for forward-thinking insurers and, in turn, for sustainable investors.
Traditionally viewed as a low-growth commoditised sector, insurance is being reimagined. A select group of insurers are evolving beyond simple risk coverage to offer preventative, proactive insurance solutions. These not only provide financial protection against weather-related risks, but also help customers reduce their exposure to them. This includes advising on fire prevention and behavioural changes – measures that can lower both losses and premiums while increasing customer loyalty.
Simply put, for the most forward-thinking insurers, increasing climate risk is an opportunity to innovate, grow market share and improve returns. Companies like Canada’s Intact Financial are leading the way, with advanced underwriting models and an offering that promotes community resilience while delivering shareholder value. Despite Canada experiencing record catastrophe losses due to wildfires and other weather events last year, Intact generated a c.17% return on equity, 6.6% ahead of the industry average.
In a world grappling with climate change, insurance might intuitively seem like a no-go area for investors. Yet for investors able to uncover the companies that are leaning into the opportunity – with innovative solutions and underwriting models that focus on prevention, resilience and sustainable value creation – we believe the age of extreme weather brings with it a significant alpha opportunity.
*Source: AON, Weather Climate and Catastrophe Insight, 2024.
