The rise in sea levels, increasingly frequent extreme weather events, and the loss of biodiversity are consequences of climate change that will have a lasting impact on the environment, society, and the economy. In this context, two socioeconomic meta-trends are particularly prominent. The first concerns the effects of changes in the global population implying new generational influences on innovation, and the second pertains to transportation systems and mobility. How will these expected socio-economic changes influence the insurance sector and the design of insurance products?
In our recently published PwC Point of View “How Climate Change Affects Insurance: A 2050 Perspective,” PwC conducted a comprehensive analysis of four key sectors: the energy sector, the global food supply sector, the IT & digital sector, and the construction & building sector.
The following is a brief insight into the results of the analyses.
With regard to societal changes, it can be assumed that, due to the influence on attitudes and values, by 2050, a “virtual-industrial” revolution can be expected, accelerating global networking and leading to new corporate structures, while also making it more difficult for insurance companies to strictly define the exact scope of the insured business with corporate customers. At the same time, the “virtual-industrial” revolution will provide insurers with metadata and new methods based on IT analytics, enabling them to analyse specific customer behaviour and better tailor insurance offerings to customer needs. Additionally, the composition of personal, customised insurance businesses will continue to evolve, including different preferences regarding asset ownership among younger generations.
The second change concerns the transport system and mobility. It is implied that the transportation sector will be dominated by public transportation and electric vehicles in the future, while shared ownership and shared use of vehicles will become more common. These changes will impact the insurance industry by, for instance, increasing the demand for insurance of public assets, while the demand for insurance for privately owned cars will shrink. Additionally, the risk profile of some asset classes will be novel, as there will be many self-driving electric vehicles in the transportation sector.
The insurance industry will increasingly encounter stranded assets due to transition risks. Liabilities such as product design will become significant issues, leading to a rise in litigation activities.
Additionally, there will be substantial growth opportunities from new suppliers and new markets. Heightened scrutiny from regulatory authorities will require adjustments in risk management policies.
The points above illustrate that the transition to Net Zero will bring about significant structural changes in the insurance industry. On the one hand, this means new challenges, but at the same time, it opens up new opportunities and business fields for the insurance sector.
More on this topic, and further reading on upcoming trends for the sectors of Energy, Global food supply, as well as IT & Digital Systems, can be found in the PwC Point of View “How Climate Change Affects Insurance: a 2025 Perspective”, a report issued by PwC Germany.
For more information, please reach out to our sector leaders below.
