Aon exists to shape decisions for the better—to protect and enrich the lives of people around the world. We provide our clients with advice and solutions that give them the clarity and confidence to make better decisions to protect and grow their business.

One of the most significant uncertainties facing businesses today is the effects of extreme weather and climate risk trends on businesses—in terms of increased physical risk, and the financial implications of the global transition to a low-carbon economy.

In 2024, the world endured $368B in global economic losses, of which only 40 percent was insured. This significantly compromises the ability of communities to rebuild and adapt for the future. This is known as the “protection gap” and it must be closed.

To address climate risk—and our new normal of extreme weather events—Aon is investing in data, analytics and next-generation forecasting models to deliver actionable insights.

Driven by our commitment to help businesses and society make better decisions to protect their people and property, our teams of modelers, data and analytics experts and re/insurance advisors are using these insights to develop and deliver solutions.

Aon’s Climate Risk Advisory Team

Aon’s Climate Risk Advisory Team helps clients make better decisions on their climate-related financial risks, access capital and unlock growth. This is accomplished through advanced analytics, modeling of both physical and transition risks and tailored consulting services. By leveraging its expertise, Aon provides practical solutions to create sustainable and resilient organizations that will stand the test of time.

Addressing Climate Risk for Large Businesses

Large corporations, particularly those in hard to abate sectors, face significant obstacles within their transition and risk mitigation plans. These obstacles can be addressed by leveraging the financial system and gearing it towards solutions that capture the opportunity the climate transition creates. This comes down to the basics of insurance, but a few challenges arise:

• Insurance is often considered only as an afterthought in transition projects, especially relative to project design, selection and financing decisions.
• Insurance coverage is sometimes mismatched to the longer-term needs of the transition, as renewals and policy for many risks still operate on an annual cycle.
• Insurers tend to be product-led rather than solution-oriented in their approach to facilitating the transition and can limit the development of innovative risk transfer solutions that transitional projects typically require.

How Aon Supports Businesses

Aon helps businesses address these challenges through strategic risk management, carbon offset insurance broking and other insurance-based solutions that reduce volatility and enhance financial stability. Our approach includes:

• Encouraging businesses to integrate insurance considerations at the inception of transition projects, as part of the capital allocation decision-making process itself.
• Assisting businesses in articulating their transition plans early to ensure sufficient risk capital is available, especially projects that have dependencies on the regulatory environment.
• Realigning insurance time horizons from an annual renewal cycle to a multi-year, multi-stakeholder partnership model that incentivizes innovation and patient capital. Doing so helps provide businesses with revenue and operational cost stability, freeing up capital flows to propel investment in new technologies otherwise not investable at scale.

Coffee Growers in Colombia

Challenges

Smallholder farmers often struggle to access reliable or affordable insurance due to a lack of market infrastructure supporting farms of their nature. Coffee growers in Colombia, for instance, face severe physical climate risks, including droughts and flooding, which threaten their yields and financial stability. This volatility creates additional challenges:

• Pricing unpredictability and supply shortages for coffee buyers.
• Risk of farmers switching to more resilient crops.
• Risk of farmers resorting to clearing land for cattle grazing, leading to loss of biodiversity and deforestation.

How Aon Supports Businesses

Aon’s strategy focuses on guiding coffee growers toward regenerative agriculture and providing insurance solutions that benefit farmers, buyers and consumers, including:

• Developing insurance payouts to stabilize supply chains and encourage farmers to continue coffee cultivation, resulting in enhanced market resilience and reduced supply disruptions.
• Supporting the creation of carbon credits through regenerative agricultural practices, allowing farmers to conserve land and potentially generate additional revenue streams.
• Providing insurance coverage for damages from drought, floods, crop disease and fire, as well as revenue losses for both growers and buyers.

Aon is expanding this model to other vulnerable agriculture markets and supply chains to ensure long-term reliability. These practices not only stabilize supply chains against climate-related risks and vulnerabilities but help create industry standards and best-practices to contribute to widespread supply chain reform and security.

Conclusion

The insurance industry is a critical enabler of the climate transition. By leveraging advanced analytics, subject-matter expertise and industry-specific insights, Aon plays a key role in mitigating climate-related uncertainties and facilitating the global shift to a low-carbon future, benefiting multiple stakeholders:

• The insured (businesses): Reduced volatility and greater financial certainty in their operations and revenue streams.
• The insurer: Financial performance through innovative risk solutions.
• The broader stakeholder (environment and society): Enhanced sustainability efforts and a more structured transition toward a low-carbon economy.

As climate risks continue to evolve, Aon’s role in helping organizations strengthen resiliency will remain essential in shaping a sustainable future for businesses and society.