Innovators, Insurers Craft New Ways to Tap Cleantech and Resilience Markets

Insurers seeking to tap cleantech markets are adopting proactive underwriting approaches and risk modelling based on science and engineering, rather than historical data, to mitigate growing threats from climate change and take advantage of new markets in cleantech, according to Cleantech Group.

“It’s clear new operating models for insurers are paying off. Insurtechs are growing at a faster rate than incumbent insurers — 25% CAGR vs 7.5% for the broader insurance industry in 2023. Insurers wield considerable power in scaling cleantech markets but need to invest in expertise to mitigate risks and need to be more ambitious in supporting cleantech.”

-- Holly Stower, Group Lead, Resources& Environment at Cleantech Group

Interview with Holly Stower, Cleantech Group

By: Suzanne Forcese

WT: Please define what insurtech is. How does it differ from the current insurance model? Is insurtech related to fintech?

Stower: Insurtech refers to start-ups innovating in the insurance sector. There is crossover with fintech and insurtech is a sub-sector of fintech as the insurance sector is considered part of the financial services sector.

WT: As a new insurance model what are the challenges insurtechs face as far as regulatory issues and a pivot in the way established insurers understand and have a willingness to shift perspective?

Stower: Regulatory challenges insurtechs face are an inability to underwrite insurance if this is part of their business model. Most insurers need to prove they have enough liquidity to pay out claims, which start-ups rarely have. Therefore, many enter into a partnership with an incumbent insurer becoming a Managing General Agent (MGA), where the insurer takes on the risk within pre-agreed parameters.

WT: Are you seeing a better pricing model with insurtech?

Stower: In some cases, innovation can unlock cheaper insurance for the customer. For example, start-ups focusing on climate risk can enable more accurate risk modelling, to a per property level rather than township, for example, which can enable pricing based more on actual risk.

Therefore, homeowners previously priced out of buying home insurance in high-risk areas (e.g., flood or fire-prone areas) can now buy home insurance.

WT: There are a number of factors that start-ups must consider to get a business off the ground. What part does risk play? How can Insurtech mitigate the risk factors?

Stower: For start-ups and their investors, there are also other risks such as fraud and other business risks. In the case of cleantech and innovative technology there is technology performance risk.

What we have observed is a general trend of insurers investing into understanding these technologies at earlier stages to capitalize on first mover advantage and specific policies based on a deep understanding of the technology and its risks of low- or non-performance. This provides protection for the buyers and investors of new technologies and enables risk mitigation from the start-up.

WT: Start-ups also depend on investors. What is the relationship between insurers and investors?

Stower: Investment in cleantech requires investor confidence, which can be supported by insurance, which reduces business and technology risks for scaling cleantech companies.

Early-stage cleantech investors are high-risk, high-reward. But as cleantech companies scale, their business risk and technology risk ‘generally’ are reduced – which can enable greater access to different forms of finance, which are less- or non-dilutive, e.g., debt financing.

This finance enables the start-up to finance FOAK projects and then meet demand faster, especially in hardtech. Insurance can fast-track this risk reduction via proactively understanding the technology, market, and performance risks and creating appropriate risk models and then policies specific to that technology.

Therefore, the insurance industry has significant enabling power to scale cleantech innovation.

WT: In WT’s recent interview with Julie Bliss Mullen, CEO of AClarity, Julie was pleasantly surprised at the number of insurers engaging with her at The Cleantech Forum in San Diego, January 2025.

In your opinion, why are insurers flocking to the water sector? And what is there about AClarity's model of 'removing all risk for the customer' that insurers find appealing?

Stower: PFAS are of concern to insurers due their bioaccumulative properties, damage to the environment and humans. This brings litigation risk, with many chemical companies and cities being sued for damage and water contamination. These companies have product liability policies or Directors and Officers Policies, which means the insurers may be paying out for these lawsuits and will likely have to pay out for the clean-up of PFAS.

Insurers are now excluding PFAS in these policies, for companies like Dupont or cities which hold environmental policies - or introducing extremely high premiums.

However, some insurers may never be off the hook for paying out for damages. Insurance coverage can either be on a claims-made basis, where coverage is during the policy period, or on an occurrence basis, where coverage is for incidents that happen during the policy period regardless of when the claim is made.

For the latter, this means that the insurer may have to pay out years after the incident occurs. In the case of PFAS, many insurers and reinsurers may have run the numbers and foresee significant losses as our understanding of PFAS damages has improved and so has people’s ability to point the finger at the polluter.

I would assume the interest in PFAS treatment technologies will be to reduce the costs of cleaning up waterways and many may be investing accordingly.

This can be compared to the Asbestos crisis which almost bankrupt Lloyd’s of London and the entire insurance industry in the 90’s. Asbestos was a commonly used construction material in between the 1950’s and 1980’s and people who worked in these industries were regularly exposed to this material. Later it emerged that inhalation of asbestos is the main cause of mesothelioma, a rare and aggressive form of lung and stomach cancer.

In the early 2000’s, many started to rightly make claims against their employers. But Mesothelioma has a long latency period of 30-40 years. Therefore, many of these companies no longer existed and so the company’s employer liability insurer would pay out. Insurers of asbestos defendants have paid out around $32 billion in compensation and high liability for asbestos claims has caused about 80 firms to file for bankruptcy.

Predicting a similar outcome for PFAS damages, it seems insurers are taking a more proactive approach looking to reduce the costs of cleanup and treatment early and prevent further damages.

Should the WATERTODAY viewers wish to learn more, they may register for our complimentary webinar, Insurance & Cleantech: New Markets for Climate Resilience, on February 11, 2025.