How insurance is being tested by a fast-evolving risk environment

Exec on why the specialist insurance sector is so unique

How insurance is being tested by a fast-evolving risk environment


By Mia Wallace

“If you take insurance out of our society and our economies, everything will grind to a halt.”

Those looking for a mission statement for the insurance proposition need look no further than Dominick Hoare’s (pictured) effective summarisation. Speaking with Insurance Business, the group chief underwriting officer for Munich Re Specialty Group highlighted how this proposition is, however, being tested by today’s fast-evolving risk environment.

It’s little wonder that so many market discussions are being dominated by analysis of this environment, he said, as geopolitical instability, climate change and pressing economic considerations – among them inflation and the threat of recession – all jostle for top billing on boards’ agendas. But if you strip them down, you find insurance at the heart of managing and mitigating these challenges.

What makes the specialist insurance sector unique?

For Hoare, what makes serving the specialist insurance sector so unique is the opportunity it presents to be at the front and centre of devising, developing and implementing innovative and accessible solutions to solve even the most complex risks. After all, he said, it was the specialist insurance community that was critical in backing the grain corridor, an industry-wide solution to a growing humanitarian need.

“Without insurance, it would not have happened,” Hoare said. “Our market was critical in making that happen because we could provide transfer risk to the shipping companies. That sort of situation is quite unique and because it’s a situation we weren’t necessarily expecting, it meant we as an industry had to adapt our skill set, and the data sets we had available, and we had to dig deeper into our expertise and experience to deliver solutions in a difficult and challenging environment.”

Examples abound of how the insurance industry adapts and pivots to meet the challenges facing clients head-on, and Hoare pinpointed cyber and climate as two areas of the ecosystem benefitting from that innovation and improvisation mindset. Cyber threats are constantly evolving as technology advances and as threat actors become more sophisticated than ever, he said, and specialty insurance is playing a key role in stepping up to provide solutions, often with very little historical data.

Understanding the nature of the specialty insurance market

By its nature, the specialty insurance sector sees the opportunity behind every challenge, and Hoare is a keen advocate for specialty insurance embracing its role as a tool for innovation as well as risk transfer.

“Insurance has historically been about insuring the tangible but that’s changing,” he said. “As of 2020, 90% of the value of the S&P 500 businesses was tied up in intangible assets. So, that is where we need to be looking. But we need to be looking at those things in a different way rather than just trying to take what we’ve been doing for the last 100 years and repackaging it, and calling it something different.

“A very good example of that is that we at Munich Re Syndicate pulled out of the world of oil and gas insurance about a year ago. It was a tough decision as it was one of our flagship accounts, but we felt the time was right to make that decision in order to re-establish ourselves as a leading insurer of ‘green solutions’. Because we recognise that the world is changing and, as a result, needs different insurance solutions.”

Munich Re’s Syndicate took a clean slate approach to affirming its commitment to the green solutions space, Hoare said, bringing in an expert team able to cover a whole panorama of insurance requirements for the sustainability sector.

“Essentially, we’re making sure that we, as specialty insurers, adapt rather than just trying to replicate and rebadge [an existing proposition] because that doesn’t work these days,” he said. “You have to be innovative, to look at your customers’ requirements and deliver something different. That often requires different expertise and then you have to factor in the capital we require to deliver that solution and how we can make sure we’re getting a return on that capital.”

Green solutions – a natural fit for the insurance proposition

Insurance is the foundation enabling the creation of a ‘green solutions’ marketplace, Hoare said, and it’s often the driving force behind the incentivisation of climate-friendly solutions, providing protection and support – without which, these solutions might never get off the ground. Munich Re Specialty Group embraces the climate transition as an opportunity rather than a risk, as affirmed by the statistic that last year global investment in sustainable energy development outstripped that of investment in fossil fuels for the first time.

In terms of numbers, the sustainable solutions market has reached a tipping point and Hoare expects to see exponential growth over the next 30 to 40 years. This is a period of change and transition, he said, and specialty insurance is well-placed to enable that transition. And while it does represent a great economic opportunity, it’s also allowing insurance businesses to be the driving force behind positive societal change.

“We’re bringing capital to be deployed by taking some risk away from that capital,” he said. “If you look at performance guarantees, for instance, I think that shows a fantastic example of what our Green Tech Solutions unit is delivering. When you get a new solar panel, you are committing capital for a return period of over 30 years. In the same way you look at any other investment, you have to assess whether your asset, in this example a solar panel, is going to be operational and work throughout that time. It can seem pretty risky so you can see why people might be hesitant to invest.

“Then along comes Munich Re, and we can largely take away that performance risk, at a cost. Then that opens up the opportunity for capital to be invested in research and development, because we’ve taken a lot of the risk away. So, foremost there is a commercial side of this for us but there’s also a strong sense of purpose, which is good because it generates more opportunity for green-technology advancements.”

That sense of purpose is embedded in the DNA of the entire Munich Re Syndicate team, Hoare said, which while it is London-based has a global footprint. London is one of the foremost centres for sustainable capital, and being at the heart of where a lot of capital is being deployed into the renewable sector allows the team to see first-hand how their efforts are paying off.

“Getting close to that capital alongside our broker community, because we work all the time with brokers, creates strength within the financial services sector in London,” he said. “Bringing it all together just shows that concept of why the whole is greater than the sum of the parts in action.”


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