The automotive industry is a significant contributor to the global carbon footprint. Greenpeace, for example, reports that the car industry’s 2018 carbon footprint exceeded EU greenhouse gas emissions and that this industry accounts for ~10% of the global carbon footprint.
The majority of the emissions from this industry is related to fuel consumption. However, as indicated by McKinsey and Company, today ~⅓ of all emissions are associated with the vehicle itself, both production and aftermarket repairs and maintenance.
In the Nordic countries, and particularly in Norway, the utilization of electric vehicles is high and growing, illustrating that the relative amount of emissions from the production and aftermarket of the vehicle itself will increase, particularly when electricity production gets gradually cleaner.
The first years of experience with electric vehicles also indicate that repairs are more costly than for conventional cars, so potentially also with a higher carbon footprint, making this shift towards focus on the vehicle itself even more important.
Motor insurance 0.5% of global carbon footprint
Motor insurers, according to our estimates, contribute ~15% of the revenues of the global automotive industry, through repairs and cash settlements of insurance losses. Under the assumption of proportionality, this indicates that ~0.5% of all global carbon footprints stem from motor vehicle repairs and cash settlements from insurers.
Combined ratio equivalence of 2-4 percentage points
The cost of carbon footprints is much debated. The established carbon pricing in Sweden is amongst the highest in the world at ~150 USD/tonnes. At the Swiss Re Climate Resilience Summit on May 26th 2021, their Chief Economist stated that carbon taxes must be expected to be in excess of 75 USD/tonnes. For internal pricing, he commented that Swiss Re utilizes 90 USD/tonnes.
At the higher interval, the cost of the ½ percentage point footprint of motor insurance would be, based on 2019 emissions, 40bn USD, or ~4% of global motor insurance premiums.
This indicates that the core of the delivery of the insurance product, namely the claims settlements, offer significant opportunity for meaningful impact by insurers.