How will the US exit from the Paris agreement impact insurance?

President Trump signed an executive order on Inauguration Day, Jan. 20, to begin the process of withdrawing the United States from the Paris climate agreement. The agreement, an international treaty on climate change, guides all member nations to reduce greenhouse gas emissions, strengthen resilience and improve adaptability to climate impacts.

Trump withdrew the U.S. from the climate pact during his first term, which became official in 2021, though the country rejoined under President Biden in 2021.

Wynne Lawrence, Clyde & Co partner and climate liability risk specialist, said this will complicate the regulatory nature of the insurance industry.

"The U.S. withdrawal from the Paris climate agreement will increase regulatory ambiguity, creating increased complexity and, potentially, lead to legal disputes as companies deal with the resulting uncertainty around transition strategies across multinational groups and supply chains. Volatile climate policy signals dent business confidence and risk renewables investment being delayed at a critical time for climate action, as physical risks and catastrophic losses due to climate change are amplified year on year," said Lawrence. "Other countries will now need to fill the climate leadership void and could stand to benefit in the renewables technology race. Whatever happens, coordinated international efforts to address the climate crisis will become even more complicated."

Some experts suggest that the focus on climate may now shift even further towards building resilience and enhancing adaptability.

"The U.S. withdrawal from the Paris Agreement adds pressure on the insurance industry to address rising climate physical risks. With federal action slowing, the focus must shift toward adaptation and resilience to manage increasing losses from extreme weather. This is a critical moment for insurers to lead by supporting their corporate clients and communities in navigating an increasingly volatile climate landscape," said Lukky Ahmed, CEO and co-founder of Climate X, a provider of global climate risk data and analytics.

InnSure's executive director, Charlie Sidoti, stated, "We are confident of two things regardless of whether or not the U.S. is part of the Paris agreement. The first of these is that the energy transition will continue, based purely on economics. The second is that the scaling of new energy resources and the impact this will have on the risk profile of the economy will require innovation in insurance.

Over time the priorities of the new administration will become more clear, and this will help direct insurers' efforts. For example, given the nominated Secretary of Energy's interest in fracking technologies, which are also used in enhanced geothermal systems (EGS), the new administration could be very supportive of the nascent renewable energy sub-sector – and insurers will then need to invest more in R&D related to EGS to remain relevant."