A fundamental shift in global transition assumptions is forcing insurers to reassess how they underwrite both physical climate and evolving transition risks to remain relevant and competitive, according to the latest Underwriting the Transition report from the Lloyd’s Market Association (LMA) and KPMG.
The second edition of the report has revealed a material shift in climate transition assumptions in just 17 months. Over the past year, average global temperatures have now exceeded 1.5°C, and the consensus following COP30 in Belém is that the risk of a “disorderly transition” has heightened.
The insurance market must now navigate the dual challenge of climate risk: intensifying physical risks and an evolving transition risk profile. For example, the PRA requires that climate risks be embedded into governance and risk appetites by June 2026.
These changing dynamics mean underwriters must anticipate changes in risk profiles and adapt coverage strategies in order to remain relevant and competitive.
Paul Davenport, Finance & Risk Director at the LMA, said, “For over three centuries, the Lloyd’s market has been the global laboratory for risk. Lloyd’s managing agents are already underwriting the climate transition. We are not just observing; we are actively supporting our clients across different sectors and industries as they navigate decarbonisation and adaptation.”
Josh Holbrook, Director, Sustainability at KPMG UK, who led the team doing the research, said, “The world has changed since we published our first report in October 2024. This second iteration provides an updated viewpoint across the transition sectors that are also key to Lloyd’s underwriters. In doing so, it provides deeper insights into the implications for underwriters, both in terms of opportunities and risks arising from the transition.”
The report highlighted four key areas of change since the first report, covering energy system dynamics, AI as both an enabler of the energy transition and a source of new systemic risks, adaptation to intensifying climate risks as a core strategic priority alongside decarbonisation, and regulatory and policy shifts since October 2024. These policy changes have moved global climate strategy toward implementation and competitiveness, with major economies tightening disclosure standards, adjusting transition incentives, and recalibrating sectoral targets.
Davenport and Holbrook emphasised the critical role of insurers in enabling businesses to achieve their transition goals.
Davenport explained, “The insurance industry, traditionally viewed through the lens of risk management and protection, is a critical partner in this transition. Without insurance, businesses will struggle to achieve their transition goals or build resilience against the impacts of a changing climate.”
Holbrook added, “It’s only by understanding companies’ transition pathways in more detail that insurers will truly be able to assist and in doing so, realise the opportunities, as well as risks, of transition.”
Davenport concluded, “Lloyd’s will continue to be the market to which these complex and emerging risks come for solutions. In the years ahead, the LMA and KPMG expect to continue monitoring and reporting on shifts that occur in government policies, regulation, and in the portfolios and risk profiles of Lloyd’s market participants.”
