Insurance for the blue economy

Waterways and oceans are critical for life on earth and the global economy, and there is growing awareness of the need to use these resources more sustainably. The sustainable economic development of aquatic resources is referred to as the "blue economy". It includes sectors that interact sustainably with marine and fresh water, from sustainable and efficient water supply and sanitation to ocean-friendly chemicals and plastics, fisheries, offshore renewable energy production, sustainable tourism and marine ecosystem restoration. As these sectors develop, insurance has a key role in providing solutions to transfer and absorb the risks they face.

The International Finance Corporation (IFC) has now defined a related term, "blue finance", as the use of financial instruments, including insurance, to support the sustainable development of marine and freshwater resources. The blue finance framework is based on the United Nations' (UN) Sustainable Development Goals (SDGs). Blue finance is intended to fund the blue economy while reducing the carbon emissions and pollution such activities may produce, improving the efficiency of energy and natural resource use, and protecting biodiversity.

China has set out ambitions for innovative, coordinated, green, open and shared economic development in its national implementation (Five Year) plans and other medium-to-long-term development strategies. Following the IFC's Blue Finance Guidelines, our China team identifies physical and transformation risks as the biggest commercial risks associated with the development of ocean- and fresh-water- friendly projects and the protection of key clean water resources. These risks are primarily discussed based on a Chinese context but such exposures can occur globally.

We see eight major risk factors that fall under these two categories. Under physical risks: natural disasters, natural ecology and environmental pollution, technological risks, sea level rise and ocean acidification risks. Under transition risks: regulatory requirements, intellectual property, changing format of products and services, and evolving customer behaviour/demand.

The insurance offerings to absorb and transfer these risks begin with typical covers such as traditional property, engineering and environmental impairment liability, for instance to insure sustainable plastic production facilities or offshore renewable energy. These extend to production liability, agricultural, marine and business interruption covers. Blue economic growth is also expected to establish new risk pools: for example, marine carbon sink index insurance or nature-based insurance solutions to protect marine ecosystems.

Advanced risk transfer solutions to support the blue economy are still evolving. For example, the development and application of new energy and carbon capture technologies is extending the boundaries of insurability, and the rise of new scenarios such as generated by as yet unknown advances in technology or decarbonisation. In this context, and as demand for risk protection solutions grows, we anticipate innovation by insurers in three areas: insurance product design, cooperation models and risk management services. Product innovation could include protecting marine ecologies from physical risks and in value terms, by pricing the costs of ecology restoration after an extreme weather or other natural disaster event, for example. Insurance can also offer solutions for emerging fields such as sustainable tourism and transformation of the shipping industry.

Insurers may innovate new business models for cross-sector collaboration, with a focus on "insurance + services", and "insurance + financial loans”. We see opportunities for the insurance industry to work with public sector and corporate stakeholders to better safeguard and sustainably develop the blue economy. With the synergies from integrating available financial resources and services, insurers can provide comprehensive support for the sustainable development of the blue economy.