Author: blogs2025

Throughout history, insurers have been pivotal in driving social change, enabling human progress, innovation, and prosperity. From seatbelts to vaccines and fire-retardant materials, insurers have fostered numerous innovations. Nowadays, they face a new monumental challenge: climate change. 2024 has been another record loss year for insurers driven by natural catastrophes linked to climate change. Insurers are hence seeking greener pastures. If done right, aiding businesses in their transformation to reduce greenhouse gas emissions becomes a positive for insurers. They can be facilitators of the transition to a carbon-neutral future by exerting influence across the wide variety of industries they finance.  

There is an opportunity for insurers to safeguard their top-line and bottom-line while supporting customers on their net zero journeys. In Underwriting, that minimizes risk exposure and scope for regulatory fines by proactively responding to changes, and clients who effectively embark on the green transition are expected to bring higher sales in the mid to long term. In Investments, the case is even better understood: 93% of investors say that climate issues are most likely to affect the performance of investments over the next two to five years. Non-transitioning companies or those who start transitioning too late are in danger of losing an investment grade credit rating, while the outperformers – what we call ‘green stars’ are expected to benefit from green technologies shift in a Paris-agreement-aligned world scenario. 

A new tool for profitable portfolio decarbonization

Insurers need to be able to translate their investee and clients’ emission reduction measures into financial implications for appropriate risk calculations, to decarbonize profitably on their own end.  

As we at Accenture are committed to fostering net zero business practices we have introduced the GreenFInT (Green Financial Institution Tool ), also known as the Profitable Portfolio Decarbonization Tool. Comparing sample client portfolio dynamics up until 2050 for high carbon intensive sectors, it shows ‘green stars’ might outperform ‘climate laggards’ by 30-40 percentage points. The true value of the tool lies in familiarizing insurance managers across investment, risk and pricing with setting assumptions for different world views, from a ‘hot world’ scenario to reaching the Paris alignment.  

Allow me to delve into the tool in greater detail. The GreenFInT tool caters to both the emissions measurement and reporting use cases (e.g., ESRS E1 quantitative KPIs for CSRD) as well as to business value cases with regards to decarbonization. The tool applies climate scenarios (e.g., 1.5°C, 2.4°C) to portfolio companies’ technology mix, depending on their Net Zero pledges and transition plans. Differences in technology mix, pledges, and plans translate into divergent profitability curves via required capital investments and differences in operational costs.  

‘Green stars’ win out in the long term

For illustration, an insurer’s ‘green star’ client from the power generation sector with a SBTi verified Net Zero target by 2040 has and will have a larger share in renewables than a client classified as ‘laggard’. With its proactive transition towards net zero, the ‘green star’ client has initial high capital costs to finance the build out of installed capacities from renewable energy sources to meet its milestones while electricity prices are relatively high – outlining a business opportunity for insurers as the client is in need of financing and insuring of the renewables built out. In comparison, a ‘laggard’ company had no and will not have capital investments beyond usual replacement and maintenance costs of its power plants. On the other hand, renewables have much lower operational cost compared to power generated from nuclear energy and natural gas. Thus, the ‘green star’ that has invested in renewables in a timely fashion will benefit from lower operational costs while the ‘laggard’ will have higher operational costs from traditional energy sources.  

Let’s take an exemplary insurance portfolio with 40 large company clients from four high-intensity sectors, namely power generation, steel, real estate, and automotive, focused within Europe. In a 1.5°C scenario, the capital need for the net zero transition of these companies amounts to approximately 650bn USD 2023-2050 – according to the GreenFInT modelling. While in the mid-term up until 2030, the EBT margin of ‘laggards’ outperform ‘green stars’ by approximately 6 percentage points, in the long-term, 2023-2050, ‘green stars’ outperform ‘laggards’ by 30-40 percentage points (see graph below). 

This forward-looking approach – leveraging scientific sector carbon budgets vs. traditional forecasts based on historical values – enables insurers to integrate long-term scenarios (up to 2050) into their current considerations. This is a most important step towards breaking the ‘tragedy of the horizon’. GreenFInT makes it possible to identify insurers’ investees and clients with trustworthy net zero commitments as the business case assessment can reveal who may not be able to afford their net zero commitments. Building a trusted relationship with these companies as insurer or investor today, is key for a profitable decarbonization. Insights gained through GreenFInT can be helpful to prioritize clients to engage with and a grounded conversation opener to better understand the clients’ transition plans. 

Beyond a net zero business case analysis, GreenFInT also covers the accounting of Scope 3 Category 15 emissions in absolute terms and physical intensities as well as target setting and a ‘What-If’ capability, enabling insurers to simulate effects on their carbon footprint with adjustments to their portfolio. 

The time to act is now

Insurance has consistently demonstrated resilience in the face of numerous challenges, and the current push towards decarbonization is no different. By embracing the transition to net zero, insurers can not only safeguard their profitability but also play a pivotal role in fostering a sustainable future. The integration of science-based sustainability targets into underwriting and investment practices will enable insurers to drive significant change across various industries. As regulatory pressures and public expectations continue to rise, insurers must act decisively to avoid the risks of inaction and greenwashing. The tools and strategies outlined provide a clear pathway for insurers to achieve profitable portfolio decarbonization, ensuring long-term growth and trust in a rapidly evolving landscape. The time to act is now, and the opportunities for those who lead the charge are immense. For further discussion on how to implement these strategies in your enterprise, please get in touch. 

This post is part of a series sponsored by Cotality.

There’s a blurry line between where a wildfire ends and a conflagration begins. But, without an understanding of both types of fires, their dynamics, and their unique risks, it is impossible to develop a comprehensive wildfire-related risk management strategy.

A wildfire is an uncontrollable fire that usually begins in the wildlands and is largely fueled by natural vegetation. A conflagration, on the other hand, occurs when a wildfire spreads to the built environment and evolves into a structure-to-structure fire. With manmade materials fueling the flames, conflagrations intensify and accelerate much faster than traditional wildfires could.

Once a wildfire turns into a conflagration, the flames can burn communities to the ground in just a couple hours, or less.

Conflagrations are on the rise, which is why Cotality launched the Wildfire Conflagration model — the first solution of its kind to analyze the risk of conflagration at every structure.

While traditional wildfire models focus solely on the hazard, Cotality’s new model is dedicated to evaluating risk of conflagration in the built environment.

Using a conflagration-specific risk assessment tool in tandem with a traditional wildfire risk evaluation solution like the Cotality Wildfire Risk Score (WFRS) enables insurers to create a more holistic risk management strategy. It is only with mechanisms to look at all angles of wildfire-related risk that insurers can provide more coverage in higher risk areas — without gambling their solvency.

Wildfire and conflagrations: A distinction that matters

Historically, catastrophe risk management professionals classified wildfires as “secondary perils”, believing they did not warrant the same level of modeling scrutiny as did traditional “primary perils,” like hurricanes and earthquakes. But after a decade of rising losses tied to wildfires, the catastrophe community now classifies wildfires as an “emerging secondary peril,” inching their way into the “primary” ranks of hurricanes and earthquakes.

The growing intensity of wildfires over the last decade has prompted many property insurance providers to shift their risk appetite. They are pulling out of the wildfire-prone areas, suspending the renewal of certain policies, and substantially increasing premiums.

This surge in wildfire destruction isn’t due to dramatically shifting weather patterns or increasingly flammable natural vegetation alone. Rather, it’s because wildfires are increasingly becoming wildfire-induced conflagrations, including the 2023 Maui fires and the 2025 Los Angeles fires.

Once considered an exclusively urban threat, conflagrations are now blazing more frequently in suburban and even rural areas. Driving this phenomenon is the rapid expansion of the Wildland-Urban Interface (WUI) — where human development meets natural wildland. These zones have grown quickly in the era of remote work and rising property values, as land in the WUI is often more affordable to build on, particularly in California, while also offering scenic views and proximity to nature. Swaths of new homeowners in these areas inadvertently add fuel to potential fires — quite literally.

Since 2020, there have been 10 major wildfire-induced conflagrations that have resulted in 26,000 structures destroyed in the U.S. The Los Angeles wildfires alone caused between $35 to $45 billion in insured losses, according to Cotality™ data. With events like these happening at least every other year, insurers need to measure the elevated risk that conflagration can bring to their portfolio.

A dual approach for a natural-ish hazard

With conflagration in the mix, wildfires present a complex, multi-dimensional peril. Although different than “all natural” perils, they aren’t uninsurable. With the right risk strategy and digital tools, insurers can make more data-backed risk decisions that enable them to operate in the expanding WUI.

Cotality offers dual views of non-house fire risk through two highly granular, deterministic risk models. These two distinct perspectives helping insurers see past blind spots, delivering a comprehensive assessment of non-house fire risk for any property.

The Cotality Wildfire Conflagration model returns a 1-100 score that insurers can use alongside the 1-100 Wildfire Risk Score to gain a comprehensive view of fire risk for any property. Each score reflects the distinct factors that contribute to conflagration and wildfire risk, respectively, providing straightforward, actionable tools for underwriters and risk managers.

The Wildfire Risk Score (WFRS) considers the following for any property:

• Risk on the property
• Distance to higher hazard areas
• Distance to wildland
• Wind
• Drought

This score zeroes in on the natural wildfire hazard itself and potential impact on properties before the built environment gets in the way.

Then, the Wildfire Conflagration Score considers the following:

• Structure characteristics like roofing and siding composition, combustible attachments, and window materials
• Building density
• Wind direction
• Weather and climate characteristics
• Ember component and all nearby vegetation types

Why both scores are must-haves

Using both scores on every property is critical because a property with one type of fire risk may not be at risk for the other. A property with very low wildfire risk — far enough away from the WUI to raise traditional concern — could be at a very high conflagration risk. A recent analysis by Cotality identified thousands of properties within the Palisades and Eaton Fires with low wildfire risk but high conflagration risk.

When insurers leverage both scores in decision-making processes around eligibility, underwriting, and even pricing determinations, they will have a comprehensive view of risk at the property level.

Conflagration at the core of the wildfire consideration

The ability of insurers to provide widespread, affordable insurance coverage to people across the United States — even in high-risk areas — is critical for both the long-term survival of the insurance system and home ownership.

Cotality’s new Wildfire Conflagration Risk Score, now available in California and other western states shortly, is a key addition to any modern wildfire risk strategy. It is the toolset on the market that answers the two critical questions: How will a fire start? And, how far will it go?

It’s time to make conflagration a part of the wildfire conversation—and to give it the dedicated analysis it demands.

To learn more about Cotality’s wildfire suite, contact us today.

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Topics
Catastrophe
Natural Disasters
Wildfire