Now, in the lead-up to COP28, with a climate emergency on our hands, we want to reinforce this common thread, highlighting why our work is more pertinent than it has ever been. In order to achieve this, we’ll be revisiting past use cases. These demonstrate our action-led work, showing the potential impact better access to data can have, and its critical role in keeping us within the boundaries of the Paris Agreement. 

Insurance

Data lies at the heart of the insurance industry because insurance is at its core, a business of risk management. With data playing a central part in assessing, pricing, and managing this risk. But, data in the insurance industry is often siloed or isolated to bilateral contracts between the insurance company and the policyholder. What’s more, in order to share data, stakeholders in the insurance industry need to navigate issues of trust regarding how their data will be used as well as issues of commercial sensitivity. All this, while operating within the labyrinth of regulations that underpin the industry. Our work with the Standard for Environment, Risk and Insurance (SERI) programme, aimed to bridge these gaps and siloes by establishing a foundation for net-zero underwriting, aligning insurance practices with sustainable objectives.

Building a case for retrofitting

The energy consumption of existing buildings accounts for around 34% of the UK’s annual carbon emissions. What’s more, 80% of buildings in use today will still be in use by 2050, the same year we have pledged to reach our net zero emissions target. Even if we focus on residential housing, of the 28 million homes in the UK, only 40% of these have an EPC rating of C or higher. There is a stark need to retrofit our existing buildings, in order to improve their energy efficiency, decarbonise and reach our net-zero targets.

In the context of insurance for the built environment, data capture often focuses on assessing a building’s resilience to current and future climate risks. In fact, insurers have a very solid understanding of the risks associated with climate change and how those risks can impact buildings and infrastructure. They do this by evaluating how well a building can withstand or adapt to extreme weather events, rising sea levels, increased temperatures, and other consequences of climate change. 

And yet, current short term insurance risk transfer measures are not capable of covering large scale risks caused by long term climate change, in short, the insurance industry lacks a focus on climate change mitigation. And, to adopt this focus, the systemic risks posed by climate change needs be taken into consideration during policy making. This should ensure the industry takes the route of net zero underwriting which, in turn, should incentivise net-zero behaviours from their customers through rewarding better building efficiency and performance. Reciprocally, if policyholders then share data relating to their retrofitting efforts, this information can then be used in underwriting to determine more accurate risk profiles and potential premium reductions. 

A climate-ready building passport

The key outputs of our SERI programme were the creation of an insurance product that would provide value across the insurance ecosystem, helping it factor in climate change mitigation. The insurance product created was a climate-ready building passport (C-RBP). It was designed to address industry shortcomings, paving a way for insurers to bring net zero underwriting into their repertoire and ultimately incentivise net zero behaviours like retrofitting. 

The C-RBP pools together the physical, environmental, financial, risk and regulatory data of a building in digital form. But more than this, it incorporates data points not widely used in building insurance or in pricing risk. These include the likes of Building Information Modelling (BIM) data, Building Renovation Passport (BRP) data including logbook & roadmap (e.g. retrofitting records) and Energy Performance Certificates. 

Merging the untapped data from the C-RBP with existing data, has the potential to give insurers a more well-rounded, accurate and timely view of risk, leading to improved risk pricing. They can, in turn, incentivise net-zero behaviours from their customers by rewarding climate change mitigation efforts like retrofitting. What’s more, building owners can use the C-RBP to gain access to open exposure data and, in turn, better understand their assets’ climate risks and greenhouse gas emissions. 

Finally, the C-RBP also has far reaching benefits when it comes to regulation and standard setting. Using a C-RBP could aid regulators in examining a company’s environmental impact by creating a more structured and efficient disclosure process with standardised data up-front. Companies can use the passport in their ESG disclosures for example, in order to demonstrate that it has accurately incorporated climate risks into its business strategy. 

Future of the industry 

Data could provide key solutions for the insurance industry, especially in the face of challenges it has encountered since our SERI project in 2021. In June this year, the Net-Zero Insurance Alliance (NZIA) – created to reduce greenhouse gas emissions in the industry – saw seven of its members leave. This was amidst growing political opposition from a group of Republicans in the United States who claimed the group might be violating antitrust laws by working together. 

The potential benefits of our Climate-Ready Building Passport (C-RBP) could serve as a beacon in these dark times, illustrating how the strategic use of data can significantly advance our mission toward net-zero objectives. By equipping insurers with a comprehensive understanding of risk, the passport becomes a valuable tool for integrating climate change mitigation efforts within the industry. Having said this, these efforts alone may not be enough. Combining government subsidies, green financing, insurance rebates, and retrofitting roadmaps with net-zero building insurance strengthens the case.

Data Challenges in the Built Environment and Insurance Sectors

The characteristics of the built environment sector and its data are well known to be fragmented and siloed. From design to construction to operation, a building can generate massive amounts of data, such as Building Information Modeling (BIM) data, materials, products, and operational data. However, much of this data is unstructured, in the wrong format (e.g. paper, PDF, excel sheet etc.), unmanaged or forgotten/lost, and most of this data are closed datasets, not for sharing. Issues of too much data to handle and lack of data co-exist, while repeated data capture is common. It is hard to work out the “what, where and how” questions when it comes to data access in the sector. When data is captured, there may still be issues for understanding and using it correctly. 

There are some attempts to aggregate building related data by the sector to tackle the problems. The attempts include the Building Passport platform that focuses on providing building fire safety; the MADASTER Passport that registers building material and product records; the Building Renovation Passport (UK, EU projects) that collects renovation related building information in a logbook and plans building renovation roadmaps, and a few others. However, they are still siloed and built for limited purposes, and at their early stage. 

On the journey to net zero, the insurance industry is preparing to support the net-zero transition of the economy, including the built environment sector, through transferring and mitigating risks. A few big insurers such as Aviva have already set up their own net-zero targets and strategies. A group of leading Re/Insurers has formed a Net-Zero Insurance Alliance to explore net-zero underwriting potentials. Others partner with academics, regulators and legal experts to explore net-zero underwriting policies and tools for building insurance (e.g. ClimateWise Principles) and develop insurance contractual clauses to combat climate change (e.g. TCLP insurance clauses). 

Data lies in the centre of insurance businesses. However, similar to the built environment sector, data are siloed, fragmented and inconsistent in the insurance industry. Data sharing is complex and difficult within and in-between companies in the sector, and has been limited in a closed circle through bilateral contracts for many years. High data friction and blockages are pushing catastrophe modellers and underwriters to accept lower quality alternative data and outputs. For building insurance, data capture focuses on buildings’ resilience to current and future climate risks rather than their potential mitigation contributions to climate change. No climate change mitigation related parameters currently exist in building insurance considerations. The insurance industry lacks understanding of where they can find and how they can incorporate climate change related information into their risk modelling and insurance pricing process to enable net-zero insurance. 

To tackle the above challenges, the Icebreaker One Standard for Environment, Risk and Insurance (SERI) project worked closely with our industrial partners and advisory groups and developed a Climate-Ready Building Passport (C-RBP) concept in our SERI Phase 1 work. 

The C-RBP Concept

The C-RBP is a design for a data service enabled by SERI open data standards that brings together the physical, environmental, financial, risk and regulatory data of a building in a digital form and under a unique identifier through a federalised secured shared data governance platform. It can bring together the above building passport platforms and many other data services to provide a means to capture and share data on a building’s life cycle. The data for C-RBP includes building design, build, operation, maintenance, renovation; risks, resilience, carbon footage, sustainability, retrofitting roadmap; historical records, real-time monitoring etc. It covers not only general building information e.g. financial, structural, physical and environment information but also includes risks, claims and GHG emissions related data. 

Through our research we have identified a number of valuable data that are currently not considered in current building insurance but will be covered by the C-RBP service. This data includes:

• Smart data (e.g. IoT data for temperature, pollution, water, flood, fire, electricity, pumps, lighting, energy efficiency etc.)
• Earth observation (EO) data
• Building Information Modeling (BIM) Data 
• Energy Performance Certificates (EPC, inc. EPC Rating) and Display Energy Certificates (DEC)
• Environmental Product Declaration (EPD for embodied carbon)  
• Building Renovation Passport (BRP) data elements including logbook & roadmap (e.g. retrofitting records)
• Environmental, Social, and Corporate Governance (ESG) data
• CREMM/GRESB & risk assessment tools

The C-RBP can provide building owners, insurers and other stakeholders beyond the insurance value chain with the data they need with ease and security on their pathway to GHG reduction goals. It can also assist the insurance industry to better underwrite building insurance. Consideration of the above list of new data in insurance risk modelling and pricing process through C-RBP could potentially open the gate to net-zero underwriting to incentivise net-zero behaviors of their customers through rewarding better building performance and enable the creation of a range of innovative insurance products. 

Call for Support 

The C-RBP is currently a concept designed by the SERI project. To enable the creation of the C-RBP service, we need support from data providers and data service providers from both the built environment sector and the insurance sector to be part of the SERI shared data governance framework. We also need support from wider stakeholders in the insurance and built environment value chains for consultation to understand more on the values C-RBP can bring and how they can be maximized for industries. 

We would love to hear from you. If you think your work is directly involved in our work, please get in touch by emailing us at seri@ib1.org.

Photo credit: Photo by Samson on Unsplash

Figure 1 The SERI Shared Data Infrastructure, where API stands for the “application programming interface”, FAPI stands for the “Financial grade API”, and OAPI is  the “Open API”.

The SERI shared data governance framework is a Shared Data Infrastructure (SDI), built on Open Banking and Open Energy foundations and many open data sharing standards (e.g. preemptive licenses). The key components of the SERI SDI are Data Authorisation Service, Membership/customer relation management (CRM), Metadata Harvester and Database, and Datasets Search Engine. Data and data service providers are brought to the SERI SDI through membership agreements. Data providers publish their data descriptions and register their licensing options per type of use through preemptive licensing or open data licensing for data users to access at different levels. Data remains in data providers’ databases under their management, performing data cleansing, verification, updates and correction locally.  Data flows from member data providers to member data service providers through Application Programming Interfaces (APIs), where shared data flows through a secured financial grade API (FAPI), designed for industries (e.g. financial industry)  that require higher API security; open data flows through a public/open API (OAPI) that may incur security issues at circumstances. Data users can search data from the Datasets Search Engine and access them directly from data providers or data service providers by complying to their respective licensing requirements. Figure 1 illustrates the SERI SDI ecosystem and how data flows within the system. 

Within this infrastructure, collaboration with a wide range of stakeholders makes data discovery, aggregation, management, and sharing through federalised data services much easier and more efficient. Data governance within the infrastructure ensures a secure platform for many current Closed Data to be shared in confidence through preemptive licenses. This can potentially unlock a whole range of new data (e.g. financial, business and environmental data, especially mitigation data for climate change) for businesses to innovate and potentially incentivise net-zero behaviours.

The Phase 1 SERI SDI is currently conceptual, at its embryo development stage and needs well defined use cases to demonstrate its value and how it works. The SERI team has developed a Climate-Ready Building Passport (C-RBP) concept as a service from the framework, associated with an industrial verified insurance market use case from a broker’s perspective. This use case demonstrates what commercial values the framework can create and how it assists the insurance industry incentives net-zero behaviours. In this use case, a broker was helping an asset manager to insure their complex assets (with many old and not retrofitted). Although they received a list of data from the asset manager, there would still be a number of extra data needed due to various reasons such as missing data, errors, data not usable etc. They have to shop around for data to fill the gaps from various third party data providers in order to be in a good position to negotiate the best insurance outcome for their customers. Data is fragmented, scattered and hard to find, and data related to sustainability in general is not identifiable or available. It is very challenging to find all the data the broker needs. A new service is needed to resolve this problem.

Figure 2 SERI Shared Data Infrastructure – A Broker’s view from the Climate-Ready Building Passport Data Service (Where API stands for the “application programming interface”, FAPI stands for the “Financial grade API”, and OAPI is  the “Open API”).

Figure 2 maps the major components of the SERI SDI for the use case and demonstrates how the broker can access different types of data (either Open or Shared) through the C-RBP service. Through the service, the broker can easily discover various building information and building risk data (inc. both resilience and mitigation risks, either open or shared) from the C-RBP search engine on the framework from his computer. Once data is identified, the system will show him his eligibility to access and how to access the data, through open or preemptive licenses. Potentially he may only need to go through one of the data service providers of the framework to access all required data. He no longer has to ask around for data and go through many bilateral contracts/agreements. The datasets from C-RBP are all digital and machine readable, and are produced under structured data standards, making it easy to use and convert. This saves time, effort and money, and enables new datasets (e.g. operational data, emission data) to be discovered to give the broker insights to innovate.

Call for Support

We are currently seeking more input from stakeholders in the insurance value chain to develop the C-RBP and the SERI SDI further. If your work is in a related field and you’d like to be involved in this initiative we would love to hear from you, please get in touch by emailing us at seri@ib1.org.

Photo credit: Image by Pete Linforth from Pixabay

Product innovation requires a leap of faith at some point along the way. This is especially true when creating a climate-ready product for the insurance sector. Like many industries, the insurance sector has struggled to create material change when it comes to the climate emergency.  This, caused partly by the lack of mandatory incentives or regulation to accelerate decision making and partly because of the monopolisation of data – the lifeblood of the insurance sector.  

Yet, within the midst of uncertainty, Icebreaker One’s Standard for Environment, Risk and Insurance (SERI) team has created something material, with the potential to move the needle of the insurance industry in the direction of net-zero. We have seen a collective willingness to create change with (Re)Insurers, Brokers, Catastrophe Modellers and others actively participating in our advisory groups and webinars, helping us tackle the real problems that arise when creating a climate-ready insurance product. They agree with us when we say the time for theory is over because we are making something tangible, with industry backing. 

Recognising the hurdles 

But, breaking into the market with new ideas and creating something that hasn’t been done before, is no easy feat. The SERI team was tasked with weighing up commercial viability, mapping participants and data flows, identifying a viable use case and recommending an appropriate regulatory seed-bed for the concept to flourish. Above all else, the data sharing platform needed to highlight a definitive user requirement, providing valuable, relevant and meaningful data along the value chain, both in a commercial and environmental sense. Positively, we discovered the two are not mutually exclusive. 

Identifying the appropriate regulation came with its own difficulties. The SERI legal and governance team had to be mindful that using the wrong stick would fix the numbers rather than the problem itself. And, while initiatives such as the Task Force for Climate-related Financial Disclosures (TCFD) is forcing companies to think about their climate exposures, it currently only targets listed companies by 2022, with the uncertain potentiality of extending to public listed and private companies by 2025. 

One of our recommendations was therefore the extension of TCFD to public listed and private companies by 2025 or sooner, as well as the transition from annual to quarterly reporting. The ramifications of this are that asset managers will have a legal obligation to report their 1,2 and 3 carbon emissions. What’s more, the transition from annual to quarterly reporting could lead to better automation of data flows, increased accessibility and lead to further innovation. 

TCFD disclosures are far from perfect however and lack standardisation. This not only makes it difficult to compare climate exposures but can also open the door to greenwashing. The increased frequency of TCFD reporting could help to bring the initiative in line with financial reporting acting as a forcing function that spurs innovation, automation of data flows and pushes it in the direction of a universal standard of reporting. 

A viable use case

Our climate-ready building passport (C-RBP) is a tool to demonstrate how the SERI shared governance framework can facilitate data sharing across the insurance value chain. It gives participants the ability to understand mitigation data, with access to a wide range of property data such as energy efficiency and flood resilience and in doing so provides information that is valuable both in reaching net-zero goals but also for the creation of innovative new products and services.

The passport can help asset managers determine whether an asset is stranded or not, giving a better understanding of operational data in a bid to move away from a design-for-compliance culture. And, with commercial property accounting for around 10% of UK energy consumption, the C-RBP can help asset managers and government understand the right renovation pathways to reach net-zero targets. This, in light of the government targeting the reduction of business and industrial energy consumption by 20 percent but lacking specificity in how to achieve it. 

Looking ahead

The C-RBP is just one example of how the SERI data sharing framework can be used with the SERI team already mapping out future iterations of the framework such as net-zero underwriting. As a whole, however, the framework can be seen as a blueprint, setting a standard for frictionless data sharing that can be adopted by industry in the near future. 

As SERI sets its sights on phase two of the project, the team can look back at what it has achieved for the insurance sector but most importantly for realising our net-zero ambitions. The next steps for SERI will be a continued focus on the commercial viability of the C-RBP and its place in the insurance market. 

Continue to shape our work

1. We would love to hear from you. If you think your work is directly involved in our work, please get in touch by emailing us at seri@ib1.org.
2. Sign up for our newsletter to keep up to date with our deliverables for SERI. 

As part of SERI, we have explored initially an aquaculture focussed insurance product that targets specific but key problem such as Algae bloom that affects UK seafood industry, hospitality industry and health.

During SERI, we have evolved to focus more on wider water quality issues that affect us, and to build a insurance product around water quality and conservation. The link towards net-zero outcomes in aquaculture practices (apart from renewable-energy driven boats) is not yet transparent. 

We mapped out the data systems and open sharing principles that underpin SERI goals.

Market-based instruments, such as ‘water quality trading to cost-effectively meet water quality goals’, were identified through the SERI research.

We are now testing the market demand for the products in the UK and India.

We have identified a large listed company in India who sells pond liners to farmers and aquaculture clients. 

They are initially buying coverage for mortality due to natural perils as part of their resilience program.

Water quality measurement is currently done using IoT systems but historic data (>20-years) is not available. This makes it difficult to underwrite quality-related risks in current installations.  We are seeking data partners in India who are working with water data.

UK: 2021-H2, we have plans to actively market the offering and test demand.

In the first part of this mini-series, we looked at the sections numbered 1, 2 and 3 in the insurance landscape image to explore what types of insurance exist, the different structures and what insurance business models are based on. Here we look at sections 4 and 5 to explore how insurance relates to the rest of finance and how insurance is distributed to buyers of insurance.

The sections of the insurance landscape are discussed in this blog. You can access the full graphic here. To learn about sections 1, 2 & 3, read the first blog of this series.

4. Insurance and the wider financial services industry

As we have seen in the previous section, the insurance industry is closely linked to the wider financial industry through the investment of premiums. Furthermore, a stock insurance company can receive money from external investors (i.e. not only from premiums paid by policyholders) from the securities market through financial instruments known as insurance-linked securities (ILS). ILS are bought by investors who are willing to take on the potential risk of a catastrophic event for the reward of the guaranteed premiums. If the catastrophic event does not occur, then the investors make money. Creating, selling and trading these financial instruments require a high level of sophistication and industry know-how, and not surprisingly access to high-quality data.

What about regulation?

Insurance is a highly regulated industry within the wider financial marketplace with strict requirements to ensure insurance companies have the ability to fulfil their contractual obligations of servicing claims. Credit agencies play a significant role in the insurance market by assessing and monitoring an insurance companies’ solvency, or ability to make payouts. Hence, credit agencies are important data users in the insurance landscape and rely on data to accurately assess insurance companies’ credibility and fiduciary function, thus providing dependable ratings not just for the buyers of insurance but also for the insurance industry’s impact on financial markets.

5. Insurance distribution

Insurance brokers, intermediaries or insurance sales arms act as the interface between the customer or user of insurance and the insurers. Hence, the distribution channels hold key information about customer behaviour and industry demand. Technology companies are increasingly moving into these segments of the insurance marketplace with the growing digitalisation of insurance distribution and robo-insurance.

Technology uptake such as with smart devices, Internet of Things (IoT), wearables and even remote sensing data has led to innovations in insurance products and processes, but not without challenges relating to data use, ownership and privacy. Most disruption has been at the customer and operations segments of the insurance value chain; such as with the use of open and shared data from the financial industry to determine a policyholder’s ability to pay premiums, thus disrupting centuries-old insurance assessment processes. Promising structures that aim to streamline other segments of the market, such as claims processing and monitoring, are also emerging.

What next?

Insurance is a heavily synergetic marketplace due to the sharing or transferring of risk through invested capital, not just within the industry itself but across the wider financial marketplace and other industries such as energy, infrastructure and transport.

Establishing standards for data sharing to open up channels internally and across industry can facilitate interoperability to speed up attaining mandated net-zero targets. Here, we have explored the stakeholders and possible data segments in insurance for the SERI project, but the whole picture is not yet complete. Next, we aim to delve deeper into specific sections of the insurance data systems and data-flow landscape to understand more about data used in insurance to help us develop climate-ready insurance products.

Got feedback? Get in touch!

SERI is holding a series of stakeholder engagement activities over the coming months. If you have any questions, comments or would like to know more, please get in touch.

Insurance Market Trends and Key Issues

Many insurance companies have been contributing to the growth of the renewable energy sector, supporting it with insurance products. However, despite the increasing awareness of climate change and continuing expansion of the renewable energy sector, the insurance market for renewable energy began to harden toward the end of 2018. Some insurers withdrew from underwriting specific sectors, whilst others closed their books entirely. This trend has continued throughout 2019 and into 2020, according to major insurance brokers Aon, Marsh and Willis. 

A survey of the insurance industry conducted by Allianz showed that business interruption, natural catastrophes, changes in legislation, cyber incidents and new technologies were the top five business risks in the renewable energy sector. Willis’s 2020 renewable energy review and Marsh’s renewable challenge research confirmed Allianz’s findings citing “several new realities” that the sector needs to embrace. These include geopolitical issues, new risks emerging from climate change, the acceleration of the renewable sector, a hardening insurance market and the increase of index-based solutions. Aon’s renewable energy market outlook 2020 report also confirmed a hardened insurance market where “a sustained period of competitive pricing and increased claims” reduced insurers’ appetites. According to Aon and Marsh’s research, component vulnerability, defective designs, extreme weather damage, large claims at project construction phase, and increasing fire and theft claims are the main drivers for increasing premium rates. Natural catastrophe limits, catastrophe model review, equipment warranties and obsolete technologies are also key issues in the industry.

Icebreaker One for Innovation

But risks and challenges bring forth innovation. Icebreaker One’s “Standard for Environmental Risk and Insurance (SERI)” project works with insurance industry partners and leading research organisations to bridge the data gap between insurance and climate change. The project incentivises climate-ready behaviours and a net zero transition through innovative insurance products. 

Renewable energy plays a central role in the UK’s transition to net-zero. The challenges of the sector and the underlying insurance industry can be translated into use cases for the SERI project which in turn can incentivise the wider adoption of net-zero initiatives and innovative insurance products. 

Use Case 1 – Insuring Flexible Energy Storage Services

Unlike traditional fossil fuel energy, renewable energy depends on natural resources that are out of human control, resources like sunlight and wind bring up availability and stability issues. Limited by high cost, energy storage also presents an obstacle for the industry with some firms being forced to turn off their generators when the grid exceeds its capacity. 

Flexible energy storage services offer a solution allowing renewable energy systems (home or commercial) and electrical vehicles (EV) to fully utilise their energy storage systems (hydro, thermal and batteries) by exchanging energy with the grid.  They act as individual suppliers or virtual power plants, storing electricity in their system at low demand periods and supplying electricity to the grid during periods of high demand. 

Aon and Marsh have reported large claims caused by construction errors, poor maintenance and bad risk management in renewable energy projects. This largely limited insurers’ appetites in the sector, especially in battery energy storage systems (BESS), Anaerobic Digestion (AD) projects. While the concept of a virtual power plant is still in its infancy, large claims and unknown risks are preventing the uptake from the insurance industry. 

An innovative insurance product for flexible energy storage services that utilises open data and shared high quality data between stakeholders (such as manufacturers, contractors, operators and insurers) could potentially break through the obstacles faced by the industry and help the renewable industry to better transfer risks and attract more investment for future development.

Use Case 2 –  Data-driven insurance products

Large claims and unclear performance of new technologies but upward pressure on the premiums of the renewable energy insurance policies are hardening the insurance market and driving away investment. This is especially true for small and medium-sized projects.

Claims can be caused by the unclear robustness of new technologies and increased failure rates of relatively untested components. Limitations in the skills and knowledge of people working in the industry, such as lack of awareness of correct installation practices also contribute to claims. 

Many of the lesser-known risks associated with renewable energy projects are present at all stages of construction and operation. The long list includes the reliability of catastrophe models, manufacturer designs and test results of assets, training and capability of construction contractors, critical updates of technologies, assets operation and maintenance procedures.

The inability to access key data lies at the heart of the problem. The insurance industry is unable to access essential asset-level data in the renewable energy sector such as breakdown data that may only be shared within a closed industry group.

Working with our partners and stakeholders in the renewables sector, we have outlined a  process to develop data infrastructure and data standards for innovative data-driven insurance products. These products will allow stakeholders to collaborate, collect, process, and share more reliable data, feeding this data into catastrophe models for more reliable outputs. The data will also aid in producing more realistic underwriting, fairer insurance cover and contribute to the softening of the renewable insurance market.

Use Case 3  Insurance products for older and smaller renewable firms

Renewable energy innovation is progressing at a rapid pace and older legacy systems, especially small systems, now are facing little or no insurance coverage. This is partly due to manufacturer insolvency, lack of parts or the ending of manufacturer warranties. 

Uninsured assets could potentially be abandoned due to the heavy financial burden caused by maintaining breakdowns. These abandoned assets can be costly to remove and most of the materials will end up in landfills according to Inside Energy. What’s more, they could risk becoming a potential blot on the landscape, adversely influencing people’s view towards renewable systems

For example, small onshore wind farms older than 5-7 years in the UK can struggle to get any insurance cover, despite the average lifespan of a wind turbine is 20-25 years. The cause for this issue may be linked to the warranties of the wind turbines. In the UK, 12% of the total 737 operational onshore wind farms are over 10 years old and with less than 1MW capacity. This problem is not just limited to wind turbines. Many older biomass energy systems located in British farms are facing similar challenges. There is an urgency to resolve this problem.

A solution lies in a government-backed scheme or insurance product that encourages small renewable project operators to upgrade components such as new wind turbines and more efficient power generators. If system components are upgraded then system warranties can then be extended. 

Use Case 4 – Government Policies to spur long-term growth

Both the renewable energy sector and renewable energy insurance industry structure their business and underwrite policies within the legal framework shaped by government policy and regulation. Long-term policies, therefore, have the power to secure the future of the sector.

We hope our work on data infrastructure and data sharing standards can provide a better insight into the mechanisms of both the renewable energy sector and the insurance industry and how they interact.

This insight can inform the UK government and aid it in forming more effective long term policies to sustain the growth of the renewable sector. Reciprocally, the renewable energy sector will assist the UK government in delivering its net-zero targets in a safe and productive manner.

We are currently collecting use cases in the renewable energy sector. If you can help us with our research or would like to learn more about Icebreaker One’s SERI project please contact us: partners@ib1.org

In response to the Paris Agreement, the UK has pledged to bring greenhouse gas emissions to net-zero by 2050, becoming the first major economy in the world to pass net-zero emission laws. The UK’s ability to reach its goal will be highly contingent on its ability to reduce emissions stemming from homes and offices, driving cars, growing food and energy generation.

 Figure 1 by the Energy Saving Trust provides an understanding of the scale of this goal, with the heating of buildings through the burning of fossil fuels and use of natural gas being the greatest contributor to current UK housing emissions. The transport sector is the second largest emitter. 

At present, carbon capture, utilisation and storage (CCUS), is an important emissions reduction process but with carbon removal technology showing slow progress, CCUS is seen as less effective than rapidly progressing and scalable forms of renewable energy such as wind and solar.

 But, for the 2050 net zero targets to be reached, renewable energy needs to be used on a much larger scale, providing a sustainable source of heating for homes whilst reducing heating emissions and increasing energy efficiency. What’s more, renewable energy should play a wider role in the electrification of vehicles as well as transport fuelled through hydro and biofuel. 

In this blog we will delve deep into renewable energy, with a focus on wind energy and its main uses. We will assess the underlying funding and insurance mechanisms before finally looking into the potential risks and barriers to adoption. 

The “Build Back Greener” targets

Last month, the Prime Minister set out new plans to Build Back Greener with a vision to make the UK the world leader in wind energy. An investment of £160 million will be made available to upgrade ports and infrastructure across communities in England, Scotland and Wales in a bid to expand the UK’s offshore wind capacity, which is already the largest in the world. The funding is intended to create tens of thousands of jobs both directly and indirectly, while reducing carbon emissions. 

In the new plans, the government’s previous 30GW wind energy capacity target is proposed to raise up to 40 GW by 2030 to fulfil the Prime Minister’s ambition to power every home in the country with wind energy (calculation based on current household electricity usage). In response to the target, a few days ago, a multimillion-pound underwater energy “superhighway” was agreed to be built by Scottish Power, National Grid and SSE to bring Scottish renewable energy to homes in England. 

According to the UK renewable energy planning database, there are 737 onshore wind farms in operation across the UK with 13,327MW electricity capacity plus 41 operational offshore wind farms with 9,693MW capacity – the largest in the world. This gives a total maximum operational capacity of over 23 GW of electricity in the UK according to Statista.

The 1.2GW Hornsea One offshore wind farm, comprising 174 large 7MW turbines, is currently the largest in the UK. In order to achieve its 40GW offshore wind capacity target, the UK needs to build at least 25 more Hornsea sized offshore wind farms, or 60 more 500MW capacity medium sized offshore wind farms. In other words, more than 2,400 large turbines with 7MW capacity have to be built in the next 10 years, a huge feat.

The ‘world’s largest wind farm’, Dogger Bank Wind Farm is currently under construction off the Yorkshire coast. With the world’s largest wind turbines (Figure 2), its capacity can reach 3.6 GW.

Government policies and initiatives

Over the last decade, the UK government has set up a series of funds and policies to support the renewable energy industry, such as renewable energy innovation funds,  smart energy systems fund, Clean Growth Fund, Urban Community Energy Fund. To encourage domestic small renewable energy generation, the UK government has also opened a number of incentive schemes such as Smart Export Guarantee,  Feed-in Tariffs (now closed) and the Domestic Renewable Heat Incentive (RHI) which offer homeowners money towards the electricity they generate as well as towards the renewable heating costs of their home. 

As a result, the UK has made great progress in its low-carbon energy transition. In the first two quarters of 2020, 47% and 44.6% of the UK’s electricity generation have been from renewable energy sources, a 10% increase from the same period in 2019 (Figure 3), within which wind energy occupied 20.6% contribution, nearly half of total renewables.

Where is the industry?

A map showing distribution of various renewable energy technologies that are either active, in construction or awaiting construction in the UK, based on the 2018 Renewable Energy Planning Database Monthly Extract from the Department for Business, Energy & Industrial Strategy (BEIS) can be found here (created by Andrew Crossland). On the map, renewable energy technologies are grouped into wind, solar, hydro, geothermal, energy storage and other renewables.

Challenges in the sector

Growing public awareness of climate change issues and the emergence of net zero targets, rapid advancement of technologies, favourable government policies, incentive schemes and rising investment interests have largely spurred on the growth of renewable energy on a global scale. However, the renewable energy sector is still facing significant challenges from political, financial, environmental and social pressures.

●Renewable energy sources are mostly dependent on natural resources that are not controllable by humans such as solar radiation, wind, and waves. For example, the strength of wind and sun may change quickly and are not always available. This leads to energy availability and power stability issues.

●Very specialised new technologies at various development phases are involved in all stages of renewable systems. They can be very expensive. Some projects remain vulnerable to mechanical and electrical breakdown in a period of continued technical innovation.

● Renewable energy plants are often sited in areas more exposed to natural disasters, e.g. offshore with greater frequency of wind and waves in coastal environments. These sites can become increasingly vulnerable under the impacts of climate change.

● Long-term growth of the renewable energy sector relies on consistent long-term government incentives to encourage investment.

Insurance to transfer risks and support investment

Unlike low carbon, renewable energy is not risk free. Insurers are experts in measuring and managing risks. With their unique insight into the challenges and opportunities facing the industry, they play a crucial role in providing effective risk management, manufacturers’ support and security for investment in the renewable energy sector.

Take wind energy. Through providing financial protection to risks from ocean transit, delays or damages during the fabrication, transport and construction stages, breakdown or business interruption during operation to liability associated with third parties, the insurance industry supports investment for the renewable energy industry to maintain its long term sustainable development. 

Insurance frequently gets a bad press for not covering what consumers want or for charging prices that force more to self-insure. Indeed, over the last 20 years, only one third of total global economic losses have been insured – so over $2.5 trillion uninsured! The coronavirus Covid-19 has again highlighted potential gaps in cover: businesses may be unable to claim on business interruption policies if there is no actual physical damage to insured premises.Insurers provide a crucial role in society though, and have already reported losses in excess of US$25bn for Covid-19. They contributed massively to rebuilding cities post-catastrophe, like New Orleans following the devastating [$50bn insured] loss from Hurricane Katrina in 2005.

Climate change is next year’s problem?

Most non-life (re)insurance policies cover risks for a period of 12 months. Some classes of business do align insurance with specific projects (such as Contractors’ All Risks Insurance), but insurers have been more reluctant than others in risk finance (such as mortgages or bonds) to offer greater durations of cover. Don’t forget that claims on some policies (e.g. liability insurance) may attach years after the expiry date of the policy, especially for claims involving occupational diseases and environmental pollution. So-called “short-tail” policies, like Property, tend to capture claims very quickly, so pricing tends to be more reactive to actual claims experience.

Insurers exposed to greater frequency and severity of “weather” losses caused by climate change can reflect this increased exposure by adjusting next year’s annual premium. But this does not incentivise any change in behaviour in the customer, other than to shop for a cheaper deal elsewhere.

What’s the incentive?

Policyholders already have some tools at their disposal to influence the price they are charged. Crude measures, including limiting cover or increasing excesses may reduce premiums, but they don’t encourage greater uptake of insurance cover itself. Building resilience, building back better [post-loss] or adaptation are all tools that can negate the impact of climate change. Unfortunately, individual adaptation may not be enough; community solutions are required to shore up flood defences, enhance infrastructure and build preparedness. All of this requires local or national government intervention and may not be reflected in individual policyholder’s insurance premiums. It may just be the difference between being insured or not.

A paradigm shift in product design is required. Rather than pricing based on the rear-view mirror, climate-ready insurance requires a systems- and outcomes-based approach. This will incentivise adoption of carbon net-zero goals. Big data, machine learning and artificial intelligence will all enable insurers to harness technology to offer new products and services in this space.

How are corporations responding?

Reputational risk is now one of the biggest risks faced by businesses. Asset owners and portfolio managers (such as through organisations like the IIGCC) are responding to investor demands to better align their holdings to meet the goals of the Paris Agreement, follow the latest science and allow them to become “net-zero investors”. Similarly, there has been an acceleration in the number of companies publicly agreeing to transition to a low-carbon economy. Organisations like Science Based Targets are encouraging companies to commit to reducing Greenhouse Gases (GHG) emissions by set percentages and target dates. 

All of this leads to peer pressure on other companies to be seen to be aligning with investor demands; failure to do so could lead to increased litigation exposure for Directors and Officers.

What can insurers do?

Insurers’ biggest challenge is to remain relevant to the needs of their customers. The “Protection Gap” [being the difference between the total economic cost and insured loss covered] has been well-studied and its impacts are different for developing and mature insurance markets; the gap is not closing and “non-damage business interruption” (where business interruption cover is excluded when there is no first-party damage) is an increasing exposure. Innovative products that support carbon net zero goals could provide opportunities for insurers to do more than provide post-loss financing options to the few that can afford the limited cover available.

You can help!

Icebreaker One is working with insurers, brokers and other stakeholders to develop new climate-ready insurance financial products that support carbon net-zero goals. These could be changes to or extensions of existing policies or new policies using shared data with pre-emptive licences. What gaps exist in existing policies? What new products could be developed using new technology to make them insurable for the first time? Can the greening of infrastructure risk, perhaps supporting the circular economy, aligned with real-time sensor technology be the next big thing?

Join us here and help us deliver a net-zero future!

The research team at Icebreaker One have been investigating the use of remote sensing across the SERI project and potential benefits these techniques can bring to stakeholders and beneficiaries. Focussing our immediate work on the insurance sector we’ve seen examples of the use of remote sensing in the field of catastrophe modelling, exposure management and risk engineering to event response and claims control. Some of these examples can be used to guide our work to define climate-ready financial products within the SERI project for property insurance, e.g. 4EI used remote sensing data to develop a building heat index across the UK. Could such a dataset be used in addition to existing data sets (such as flooding hazards, landslide susceptibility) and help better define financial products such as mortgages and home insurance? We don’t know yet if climate change is causing more weather weirdness but a project to use supercomputers to re-run climate models has been proposed by the Met Office.

Figure 1: some uses of remote sensing within property catastrophe insurance

Other examples include Skytek, a technology company that uses remote sensing technology to support shipping insurance businesses. They use earth observation data to monitor storms and severe weather events, to track ships offshore and assess their proximity to potential disastrous storms. They also use data to guide insurance underwriting and post storm claims. Combining the ship’s tracking system (AIS which also uses Global Positioning System (GPS) to define the ship’s location and satellite imagery of upcoming weather events allows insurers to identify ships which may be at risk and monitor their response to storm alerts (Skytech, 2020). The shocking events in Lebanon have been well documented in the mainstream media and there are a number of before and after satellite images published and offered as free data by major satellite image providers (e.g. Maxar). That data is very useful for damage analysis for post-event insurance claims which may be used following man-made disasters or natural catastrophes.

From extreme weather events and disaster response to ship emissions, a topic which is of high importance to the International Maritime Organisation and their recent focus on cutting sulphur oxide emissions. The use of UAV (unmanned aerial vehicles) remote sensing is evolving. Companies such as Martek Marine uses drones to assess emissions from ships. Another example is EMSA that uses UAV remote sensing with gas sensors to monitor sulphur emissions on the coast of Denmark. One way the shipping industry is looking to reduce emissions is by moving to LNG (Liquified Petroleum Gas).

As the IMO (2016) states, “the use of LNG is considered to have significant environmental advantages. An LNG fuelled ship reduces the emissions of NOx by 85% to 90% (using a gas only engine), and SOx and particles by close to 100% compared to today’s conventional fuel oil. In addition, LNG fuelled ships may result in a net reduction of greenhouse gas (GHG) emissions”.

Decarbonisation of shipping is one of the product ideas of the SERI project – we are exploring how remote sensing and related technologies can be used to develop financial products.

The agriculture sector is one of the heaviest greenhouse emitters and remote sensing can be used to estimate emissions. One example by SEGES using Web Map Service (WMS) imagery highlights how machine learning algorithms were applied to remote sensing imagery to detect in an automated way over 26,000 slurry tanks and assess ammonia emissions across 34,000 farms and over 42,933 km2 land in Denmark in 2019.

From the studies mentioned above we can see that remote sensing data is usually used within each sector as derived data, i.e. it’s not the raw data outputs that are most useful but those obtained by processing and analysing imagery information to gain climate and environmental insights, monitor and detect changes. Creating climate-ready financial products offers an opportunity to use or develop derived information,  e.g. thermal or greenhouse gas emissions calculations, flood hazard mapping, land-use etc.

Through our research and collaboration with SERI project partners and stakeholders, we hope to be able to use remote sensing to inform our development of climate-ready financial products in a sandbox/test-bed environment over the coming months. We are currently collecting use cases from other fields that may contribute to climate-ready financial products innovation. This will be an exciting journey –please reach out if you’d like to learn more. We’d love to hear from you!

Insurance is a complex industry. In simple terms, paying small amounts, or premiums, over time to an insurer entitles us to claim large sums from the insurer if things go wrong. However, insurance business models depend on complex interactions of industry, data, mathematical modelling, investment structures, commercial and non-commercial stakeholders, and of course, changing circumstances caused by events around us.

Data is a key part of insurance, but the data flows and channels that exist are closed and/or high-friction. Data sharing is often carried out through expensive, bilateral agreements. Furthermore, there is a lack of standard formats across the insurance landscape for data sharing, and data quality widely differs depending on its uses.

As part of SERI, we mapped out the insurance industry landscape to clarify the various segments, how they interact, and the data channels that exist between market participants. By understanding the value chains, data layers and “gatekeepers” of the insurance ecosystem, we aim to identify levers that can facilitate decarbonisation across the industry through shared data. Creating a standard for a robust data-sharing infrastructure can facilitate cross-industry inoperability to reach our net-zero targets.

This is the first iteration of the insurance landscape based on findings to date. You can explore it in detail here. If you have any comments or feedback or would like to collaborate to take this work further, please get in touch.

Mapping the insurance landscape part 1

Here, we look at numbered sections 1, 2 and 3 of the insurance landscape.

1. Insurance types and structures

Insurance is broadly split into life and non-life company types, primarily structured such as mutuals or stock / proprietary companies. Other hybrid structures of insurance exist, such as Lloyd’s syndicates, P&I clubs and takaful insurance. Parametric or index insurance is yet another type of insurance and differs from traditional insurance in how the payout is structured.

Life insurance is similar to investment savings and pensions in that there is always a lump sum payment at some point in time. Non-life insurance provides coverage for risks that may cause significant financial loss such as in the event of flooding, fire or a motor accident. Insurance for specific risk themes is known as insurance products. For example, a goods company may purchase a marine insurance product to protect its cargo at sea. Policies are specific insurance agreements between a customer and insurer based on that customer’s needs.

The customer buys an insurance policy to off-load a potential expensive financial loss onto the insurer. The insured policyholder thus transfers an unknown financial loss amount to the insurer for a defined price. This is known as risk transfer and is an element of risk management.

Furthermore, insurance companies can purchase reinsurance. Reinsurance companies take on financial risks that may be too large for the primary insurance company to bear for a predefined price. Here, the primary insurance company is the insured, or policyholder and the reinsurance company is the insurer. Reinsurance firms can thus further off-load risk by buying their own reinsurance, which is known as retrocession. 

2. Insurance pricing

Insurance premiums and compensation limits are estimated through the pricing of risk. Risk pricing is derived mathematically from the probability of said risk, namely:

• the likelihood of its occurrence (will it happen?);
• the frequency (how often does it happen?); and 
• the severity (how bad is it?).

The above are estimated through a variety of macro and microdata inputs. Different types of data (such as historic, financial, and geographic data to name a few) are used for the pricing of risk, and thus to estimate general premium amounts and compensation amounts for a particular theme or insurance product. Actuaries in the back office estimate the general product pricing range, while the underwriter uses individual factors to accurately price the individual’s policy. This exchange of information or data between the underwriter and the back office is a crucial part of the insurance business model. The underwriter has the final say on what risks the insurance company is willing to insure for the individual and at what cost

3. The insurance business

Levels of risk and their associated premiums from numerous insurance policies diversified across customers, products and geographies are held in the insurance companies’ portfolios. The premiums paid by customers make up the portfolio, which is invested to grow. The portfolio monitoring teams ensure appropriate levels of liquidity with respect to risk and associated payouts are maintained. In the event that a policyholder experiences a loss, for example, due to extreme weather events that cause flooding damage, the insurer pays out the claims from its portfolio (or book) once the claim is verified.

Insurance business models are based on carefully balancing the levels of risks due to few loss events (and therefore the associated claims payout) with the premiums paid by all policyholders. Insurance companies make money managing the portfolio to get more from the premiums than the companies have to pay out to service claims from their policyholders.

Insurance profits are thus made up of money made “balancing the book” (underwriting profits) and profits from investing premiums in the financial markets, which is discussed in part 2.

I hope you had a good Bank Holiday weekend! It’s slightly scary to realise it’s now September. The days are feeling cooler and autumn is fast approaching… as too are SERI deadlines.

As an experiment we will be posting our SERI updates on the Icebreaker One website as well as sending an email out (e.g. https://ib1.org/2020/08/28/seri-update-20200824/). Please do let us know if that is either a concern for you, or if it becomes a useful way to find information!

1. Overall Programme Updates

Hopefully, everyone has received an invitation to the all-SERI partner call on 8th Sept. This meeting will be to discuss the road-map Jannah and Frank are working on to ensure we deliver a climate ready-financial product by mid-November. Let me know if you haven’t received your invite, and I’ll make sure you get added! 

We’re keen to give you as much notice as possible for the all-SERI partner meetings on 5th October and 5th November. To help us with this, could you fill in these two doodle polls by Monday next week, so we can find the most suitable time slots [LINKS REDACTED]

2. Key Upcoming Dates

4th Sept (16:30 – 17:00) – Icebreaker One Show & Tell. We have a spare slot if anyone wants to present anything?

8th Sept (10:30-11:30) – All-partner meeting, to give you a chance to hear more about the product road map. We’ll be sending pre-reading on the 4th. 

2nd Oct –  Submission date for UKRI progress report

5th October – All-partner SERI meeting. Time TBC

5th November – All-partner SERI meeting. Time TBC

3. Policy

Jannah wrote and submitted Icebreaker One’s response to the Treasury Committee’s inquiry into Decarbonisation and Green Finance: https://committees.parliament.uk/work/96/decarbonisation-and-green-finance/.

I’ve attached our submission.Please do not share it with others outside of your immediate teams until the Committee has published the evidence they received.

4. Product Innovation

Frank and Jannah continue to work on the details of the product innovation framework. This includes fleshing out a draft process for taking an idea through a series of stages to validate it while adding sufficient detail for a partner to take over its development. We will talk through the process at the September 8th meeting, along with our plans for taking the existing ideas through the process.

We also continue to work with Jeremy, Srini and Martin on identifying how risks relate to insurance categories, as part of helping us understand where insurance opportunities may lie.

5. Coming soon….

We have some great blogs ready to publish that Jannah, Vichi, Lily, and Jeremy have written on all things insurance and innovation. Please keep an eye out for those on our website and I’ll link to them in a future update. Any help to disseminate this content would be gratefully received!

Jeremy has been doing a deep dive into how we can leverage the bond market for insurance. He will be sharing the outputs of this over the next few weeks. Get in contact with Jeremy (jeremy@ib1.org) if you are interested in seeing what he’s been working on.

6. And finally…. 

Thanks for getting to the end. As ever, I appreciate your thoughts and feedback about these updates, and how they should improve. 

I’ll leave you with this data visualization which, showing how much electricity various energy plants create: https://informationisbeautiful.net/visualizations/mega-what-the-worlds-biggest-and-most-notable-power-plants/. I love nicely designed data visualization, as it can make it easier to tell powerful stories to wider audiences. If you see any good data viz related to the scale of the challenges faced by the insurance sector, could you please let me know? I’d be keen to help promote it!

Until next week, 
Michelle (and the Icebreakers)

The SERI aim is to create a clear, impactful and detailed data governance framework (the Standard for Environment, Risk and Insurance) that enables government, businesses, consumers and 3rd party developers to understand the potential of sector-wide data sharing in insurance to develop climate-ready financial products. Using industry-defined use cases to frame user needs, it will detail the steps to implementation in the UK and empower decision-makers to mandate, measure and act upon the data-flows that enable Net Zero.