MMC Rising Professionals’ Global Forum: New products and data key to building more resilient societies, says Schauble
As climate change rises up the agenda, there are huge opportunities to help companies manage risk in the burgeoning weather protection market, said Barney Schauble, Managing Principal, Nephila Advisors...
Speaking at the MMC Rising Professionals’ Global Forum, he said: “It feels like the early days of the catastrophe ILS market”.
He told delegates some of the history behind the emergence of insurance linked securities and the involvement of the capital markets in taking on peak re/insurance risk. He noted that “capital is no longer a rate limiting factor” and that it was now “possible to focus on other ways to improve the risk transfer sector”.
“As an investor, you now have a wide array of ways to think about how you would want to participate in the insurance market,” said Mr. Schauble. “And they're thinking across that whole menu in terms of what gives them the best risk and return and transparency.”
“So now it’s about what that capital can enable. Climate change is a huge problem and it's not one that's being well addressed by the insurance industry.”
“If we can design new products or use new data to make better decisions, and not allow that risk to just default back to the government balance sheet here in the UK or the US or other places, not only do we build a more vibrant market with more opportunity, but that's a far more resilient economy than if we choose not to address those risks at all.”
Nephila, he explained, has a long history of partnering with technology start-ups such as The Climate Corporation, REsurety and WorldCover to offer new weather protection products to farmers and renewable energy companies among others.
“With renewable energy the bank will make a very conservative assumption about how much wind is going to blow,” said Mr. Schauble. “If we can take that risk, the bank doesn't have to worry about it and a lot more wind farms get built, which is obviously a desirable outcome.”
Nephila’s role is as risk capital provider. “It means they can focus on the operation and on the origination and they don't have to worry about holding capital against the risk.”
Other companies are providing information on the data side, using weather sensors and satellite imagery to provide more accurate forecasts than ever before. And much of the insight is freely available. “Launching our own satellite array [as suggested by a speaker earlier in the day] seemed expensive and time-consuming, but there's a lot of satellite imagery out there to help when we receive submissions that might include a hundred thousand houses,” he explained.
Machine learning can help to make sense of the huge volumes of data available, distilling it down into meaningful information that will enable the catastrophe protection market to benefit from better information.
“It's impossible to find somebody who will sit there all day and type each address into Google Earth to tell us exactly what each house is made out of, and we’ve tried,” said Mr. Schauble. “But you can teach a machine to do that very easily.”