Nephila’s Schauble: weather protection market ‘like early days of cat ILS’

The development and growth of weather risk protection products, in response to increasing awareness of climate change, “feels like the early days of the catastrophe ILS market”, Nephila Climate chairman Barney Schauble has said.

Schauble said the insurance sector has a huge opportunity to help build more resilient societies with new products and data, as he spoke to delegates at the MMC Rising Professionals’ Global Forum 2019 in London last week.

Recollecting the emergence of insurance linked securities and how capital markets took on peak re/insurance risk, he said “capital is no longer a rate limiting factor” and now it was “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 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.”

He continued: “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.”

He said Nephila has a long history of partnering with technology start-ups such as The Climate Corporation, REsurety and WorldCover to provide new weather protection products to farmers and renewable energy companies, for example.

“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.”

He explained that Nephila has a role 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.”

Weather sensors and satellite imagery are providing the data to create more accurate forecasts than ever before, and a lot of this insight is freely available, meaning weather protection companies don’t necessarily need to launch their own satellite array, which can be expensive and time-consuming.

Schauble pointed to machine learning as the answer to making sense of the huge volumes of data available.

“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,” he said. “But you can teach a machine to do that very easily.”

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