Fundamental shifts in global transition assumptions are forcing insurers to reassess how they underwrite natural climate and changing transition risks to stay relevant and competitive, according to the latest Underwriting Transformation report from Lloyds Market Association (LMA) and KPMG.
The second edition of the report reveals a significant shift in climate transition assumptions in just 17 months. In the past year, the global average temperature has exceeded 1.5°C, and the consensus after COP30 in Belém is that the risk of “disorderly transition” has increased.
Insurance markets must now respond to the twin challenges of climate risk: rising physical risks and a changing transition risk profile. For example, the PRA requires that climate risks be integrated into governance and risk appetites by June 2026.
These changing dynamics mean underwriters must anticipate changes in risk profiles and adjust underwriting strategies to remain relevant and competitive.
Paul Davenport, director of finance and risk at the LMA, said: “Lloyd’s markets have been the global risk laboratory for more than three centuries. Lloyd’s managing agents are already underwriting the climate transition. We don’t just observe; we actively support clients across sectors and industries as they address decarbonization and adaptation.”
Josh Holbrook, KPMG’s UK sustainability director, who led the research team, said: “The world has changed since we published our first report in October 2024. This second iteration provides an up-to-date view of the entire transforming industry, which is also critical for Lloyd’s underwriters. In doing so, it provides deeper insights into the impact for underwriters, including the opportunities and risks arising from the transformation.”
The report highlights four key areas of change since the first report, including energy system dynamics, artificial intelligence as an enabler of the energy transition and a source of new systemic risks, adaptation to rising climate risks as a core strategic priority for decarbonization, and regulatory and policy shifts since October 2024. These policy changes have boosted the implementation of global climate strategies and competitiveness, with major economies tightening disclosure standards, adjusting transition incentives and realigning sectoral targets.
Davenport and Holbrook highlighted the critical role of insurance companies in helping companies achieve their transformation goals.
Davenport explains: “Traditionally, from a risk management and protection perspective, the insurance industry has been a key partner in this transformation. Without insurance, businesses will struggle to achieve their transformation goals or build resilience to the impacts of climate change.”
Holbrook added: “Only by understanding a company’s transformation path in more detail can insurers truly help, recognizing the opportunities and risks of transformation along the way.”
Davenport concluded: “Lloyd’s will continue to be the market where solutions to these complex and emerging risks are sought. Over the coming years, the LMA and KPMG expect to continue to monitor and report on changes in government policy, regulation and the portfolios and risk profiles of Lloyd’s market participants.”
The post Lloyds: Fundamental shift in assumptions for insurers to tackle climate transition: LMA and KPMG appeared first on ReinsuranceNe.ws.
