Insurance Solutions for Climate Risk in Transportation & Logistics

A new report from Lloyds and Willis Towers Watson, entitled On the move: Rethinking transportation and logistics supply chains, identifies sustainability and decarbonization as a key risks facing a sector valued at $9.66trn, forecast to reach $13.77trn by 2028 (6.23% CAGR), while supporting $89trn of global GDP.

In an industry known for its efficient capacity management and resilience to operational events, the report finds widespread investment in sustainability, decarbonization (internally and customer/supplier facing) and mitigating growing supply chain risks through planning, redundancy, contingencies, partnerships, data, and technology.

Nonetheless, the overwhelming majority of transportation and logistics businesses surveyed reported that while they had coverage in place for certain risks, appropriate insurance solutions are critical but remain difficult to source.

The report cited a host of sustainability and decarbonization issues shaping risk in the sector, from the implementation of green / low-carbon designs and technologies throughout their operations and supply chains, to the impact of physical climate risks (heatwaves, drought, severe weather), and new risks as for example with battery fires.
 
The authors find that (re)insurers have an opportunity to both increase awareness for existing products and amend forms / develop new policies to fill coverage gaps related to business interruption, supply chain risk, transportation / trade disruption, and the impact of new (green) technologies.

At the same time, (re)insurers stand to gain from collaboration with the transportation and logistics sector – as well as governments and other stakeholders – who have a shared interest in leveraging technology, data, and modelling to manage supply chain risk in a world where disruptions can quickly have ripple effects across the economy. Such collaboration can help transportation and logistics companies understand the total cost of risk, and help (re)insurers develop insurance solutions that are profitable, attractively priced, and less complex to underwrite.

Source: Lloyds, https://www.lloyds.com/news-and-insights/futureset/futureset-insights/rethinking-transportation-and-logistics-supply-chains