Report — SERI Business Models

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Executive Summary

The Standard for Environment, Risk and Insurance (SERI) Product Innovation working group developed a robust process to enable focused and more rapid investigation of potential insurance solutions to support the programme’s goals of developing climate-ready financial products. We explored over two dozen ideas and have taken several through a detailed analysis, which is still continuing. A key consideration in innovation is identifying those ideas that should not be taken further, in order to focus effort on those that are most likely to succeed. The process has gating questions to establish critical information for success.

A climate-ready financial product is defined as a product that actively mandates the outcomes from its use is demonstrably net-zero. For example, a climate-ready building is one that minimises its own emissions during construction, its ongoing consumption footprint during use, and is resilient to the changing environment in which it exists. The challenge for SERI was to find new products that would not just support, but incentivise, these behaviours too.

We applied and tested a rigorous approach to new product development and our findings include the
following:

• Novel product ideas emerged across the main areas of climate-related risks.
  • Product 1: Investigating the product options for investors and insurers to work together to upgrade legacy renewable energy equipment in support of government goals to increase the capacity of sustainable energy production.
  • Product 2: A potential family of products relating to algal blooms & water quality, that springs from an initial investigation into parametric insurance for algal blooms, and which may widen out to include those based on water quality indexes.
  • Product 3: Examining how data on commercial buildings could be shared through a novel “building passport” that could assist emergency services, asset owners and managers as well as insurers to get live information on their assets. This feeds directly into the TCFD reporting requirements.
• Insurance, while underpinning the financial markets through their investment portfolios and enabling others to innovate through de-risking, acts as the means to build resilience and adaptation to climate change and is not currently a primary incentiviser of carbon net-zero behaviours. However, there is a growing trend for insurers to avoid providing cover for fossil fuels extraction, due to the associated reputational risk and the need to manage their own climate transition risks. Some insurers are stressing the need to support customers during the transition period. The SERI programme is actively investigating the ways in which insurance can be used as a tool to disincentivise non-net zero and carbon-emitting practices, particularly via the Policy & Regulatory workstream.
• The trend of parametric product solutions adoption continues as new technologies and data sharing improve, and there is potential to further explore this paradigm as a driver of net zero outcomes.
• Increased use of open standards for data sharing, allowing for improved interoperability between systems and access between market participants, will drive the development of more focussed and robust insurance products that can demonstrably achieve impact in addressing climate risks.