These reports establish a common baseline, mapping the decarbonisation pathways for critical sectors and identifying the levers available to insurers to support a managed transition. They provide a foundational framework for understanding how first-party property coverage will need to evolve in the face of changing climate risks.
During the last year the landscape has changed. The "State of the World" in 2025 presents a sobering reality: the average increase in global temperatures has 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 a dual challenge: intensifying physical risks and an evolving transition risk profile. This includes, for example, the PRA mandating that climate risks (including climate litigation risk) should be embedded into governance and risk appetites before June 2026.
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.”
What has changed in 17 months?
The report highlights four key areas of change since the first report:
Energy system dynamics
Global energy demand continues to rise sharply, driven by population and GDP growth alongside accelerating electrification, cooling demand, and the explosive growth of AI and data centres. Under the International Energy Agency’s World Energy Outlook 2025 Current Policies Scenario (CPS), oil demand is not projected to peak before 2050 and could reach 113 million barrels per day, requiring new upstream projects. Unabated natural gas usage is projected to remain stable into the 2030s, while demand for coal is projected to decline more slowly than anticipated unless government climate and energy policies tighten.
Continued demand for oil and gas could decrease stranded asset risk for insurers in the short-term compared to last year’s iteration of the CPS. However, it also signifies slower emissions reduction, contributing to higher long-term physical climate risk. At the same time, slow energy efficiency gains, and an electricity grid that is not keeping pace with the rapid expansion of renewables, create stress and instability in the power system. This makes the assets insurers cover more prone to interruptions, malfunctions and performance issues, increasing the likelihood of operational and reliability related losses.
Technology and AI
AI is emerging as both an enabler of the energy transition and a driver of new systemic risks. AI applications such as grid forecasting, predictive maintenance, and smart-building optimisation, help the energy system run more smoothly by improving reliability and accelerating renewable energy integration. However, the same technologies are fuelling explosive growth in electricity demand, especially because data centres need huge amounts of power to run.
Global data centre electricity consumption is projected to more than double to around 945 TWh by 2030 with the US, Europe and China, which account for 85% of current load, driving most of this growth. While the share of renewables in data centre supply is rising, natural gas and nuclear remain critical for capacity and reliability as grids struggle to keep pace with demand.
For insurers, there are key opportunities for AI models to simulate future scenarios, enhance the accuracy of risk estimation, drive better pricing models and identify false claims more effectively. However, significant risks and challenges remain around data quality and protection, regulatory uncertainty as well as emerging AI-related insurance coverage risks.
Adaptation
At the same time, physical climate risks, such as heatwaves, floods and wildfires, are intensifying. Observed extremes are occurring more frequently and with greater severity, with the World Meteorological Organisation confirming sharp increases in heatwaves, floods, droughts, wildfires and other destructive extremes as global warming increases.
Adaptation to climate change is no longer optional; it must sit alongside decarbonisation as a core strategic priority. The likelihood of compound shocks, such as simultaneous droughts and crop failures, is increasing, with cascading effects on global trade and financial systems.
Regulatory and policy changes since October 2024
Affordability has become a defining issue reshaping national energy policies. High electricity prices and cost-of-living pressures in advanced economies have eroded public support for transition measures, leading some governments to roll back or delay investments.
As a result, global climate policy across all regions has shifted since 2024 towards implementation and competitiveness, with major economies tightening disclosure standards, adjusting transition incentives and recalibrating sectoral targets. These changes create opportunity and risk, expanding demand for insurance in renewables, grids and adaptation projects, while increasing the risk of compliance failures, stranded assets, and transition uncertainty.
Why this is important for insurers?
Paul explains: “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.”
Josh 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.”
Paul 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.”
Full report Underwriting the Transition
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