Insurance for a Looping World: How New Products Fuel the Circular Economy

Let’s be honest. The old way of doing things—take, make, waste—is hitting its limits. It’s not just bad for the planet; it’s a brittle business model. Enter the circular economy. This isn’t just recycling. It’s a complete rethink: designing products for longevity, leasing instead of owning, repairing, refurbishing, and sharing assets in loops.

But here’s the deal. These innovative, sustainable business models come with new, unfamiliar risks. If you’re leasing a high-value piece of industrial equipment for a decade, who’s responsible when it breaks? If your entire revenue depends on a fleet of shared electric scooters, what happens after a major recall? Traditional insurance products often fall short. They just… don’t get it.

That’s where a new wave of insurance comes in. Think of it as the protective layer that lets the circular economy scale from a cool idea into a robust, investable reality. Let’s dive into how insurance is evolving to support this crucial shift.

Why Old-School Insurance Stalls Circular Business Models

Standard property and liability insurance is built for a linear world. It assumes ownership, predictable depreciation, and a clear “end-of-life” (usually a landfill). Circular models mess with all those assumptions.

The main pain points? A few big ones. First, value confusion. An insurer might see a refurbished smartphone as “used goods” with low value. The circular business sees it as a premium, warrantied product with significant retained value. Insuring it for the cost of raw materials just doesn’t cut it.

Then there’s extended liability. In a product-as-a-service model, the manufacturer or leaser retains ownership—and thus liability—for years, maybe decades. A standard one-year liability policy is a terrifying gap.

Finally, there’s the data gap. Insurers love historical data to price risk. But how do you price the risk of a novel remanufacturing process or a peer-to-peer tool-sharing platform? You often can’t. So the default is “no,” or a prohibitively expensive premium.

The New Toolkit: Insurance Products Built for Loops, Not Lines

Innovative insurers are starting to close these gaps. They’re creating products that align with the principles of circularity itself. Here’s what’s emerging.

1. Performance Warranty & Guarantee Insurance

This is a game-changer. Say a company sells or leases remanufactured industrial motors with a 5-year performance guarantee. If the motor fails, the company is on the hook. A performance warranty insurance policy backs that guarantee. It protects the business’s balance sheet and, more importantly, builds insane customer trust. It signals that the refurbished product is as reliable as new—maybe more so.

2. Residual Value Insurance (RVI)

This is crucial for leasing and “product-as-a-service” models. RVI protects the asset owner (the lessor) against the risk that the leased asset—be it a car, a carpet, or a medical device—will be worth less than predicted at the end of the lease term. By guaranteeing future value, RVI makes financing easier and cheaper. It tells banks, “Hey, this circular asset holds its value. You can lend against it.”

3. Repair & Reuse-Focused Policies

Instead of “total loss” payouts that encourage replacement, these policies are designed to fund repair and reuse. For example, a policy for a commercial building might prioritize payouts for deconstructing and repurposing materials after a fire, rather than just a cash settlement for new stuff. It financially incentivizes the circular behavior we want.

4. Parametric Insurance for Shared Assets

Shared mobility (bikes, scooters, cars) and other shared assets face unique, systemic risks—like a city-wide regulatory change or a software hack that disables an entire fleet. Parametric insurance pays out based on a predefined trigger (e.g., “a new ordinance passed on date X”), not complex loss assessments. It provides fast capital to pivot or rebuild, keeping the shared model alive.

Real-World Impact: Where It’s Happening Now

This isn’t theoretical. Pioneers are using these tools today.

Industry	Circular Model	Insurance Innovation in Action
Fashion	High-end apparel rental & resale.	Policies that cover garment damage, loss, and—critically—depreciation based on reusable value, not just retail price.
Construction	Building material banks & modular design.	Insurance products that cover the storage and future performance of salvaged materials, de-risking their use in new projects.
Electronics	Device-as-a-service for businesses.	Bundled packages covering theft, damage, and guaranteed buy-back value, making leasing IT hardware a no-brainer.
Agriculture	Precision farming & equipment sharing.	Usage-based insurance for shared farm machinery, where premiums are tied to actual hours of operation, not flat fees.

The Symbiosis: How Data and Trust Close the Loop

Here’s the beautiful part. For these insurance products to work, they need data—data on product durability, repair rates, material flows. In providing that data, circular businesses actually help insurers refine and lower their premiums. It’s a feedback loop of trust and improvement.

An insurer backing a company that designs easily repairable products is taking on less long-term risk. That should be reflected in the cost. This creates a direct financial incentive for better design. Insurance stops being just a cost of doing business and starts being a partner in resilience.

Looking Ahead: The Roadblocks and The Potential

Sure, challenges remain. The insurance industry moves, well, deliberately. Regulatory frameworks are still catching up. And there’s a real need for standardization in how we measure circularity and its risk profile.

But the potential is massive. As investors and consumers demand sustainable practices, the ability to de-risk circular models becomes a competitive superpower. Companies that embrace these tailored insurance solutions will find it easier to secure funding, attract partners, and build unshakable customer loyalty.

In the end, it’s about aligning financial mechanisms with the world we want to build. Insurance for the circular economy isn’t just about covering loss. It’s about insuring transformation. It’s a signal that a business isn’t just extracting value from the world, but is invested—truly invested—in its long-term health. And that might be the most sustainable model of all.