How insurance is tested by the rapidly evolving risk environment

How Insurance is Tested by the Rapidly Evolving Risk Environment | Insurance Business America

Exec on why the specialist insurance sector is so unique


According to
Mia Wallace

“If you take insurance out of our society and our economies, everything stops.”

Those looking for a mission statement for an insurance quote need look no further than Dominick Hoare’s (pictured) effective summary. We speak to Insurance Business, the group’s head of underwriting Munich Re Specialty Group emphasized that this proposition is being tested by today’s rapidly evolving risk environment, however.

It’s no wonder so much market discussion is dominated by analysis of that environment, he said, as geopolitical instability, climate change and pressing economic considerations — including inflation and the threat of recession — all vie for top billing on boardroom agendas. But if you strip them away, you’ll find that insurance is at the heart of managing and mitigating these issues.

What makes the specialized insurance sector unique?

For Hoare, what makes serving the specialty insurance sector so unique is the opportunity it presents to be at the front and center of designing, developing and implementing innovative and affordable solutions to address even the most complex risks. After all, he said, it was the specialized insurance community that was critical to supporting the grain corridor, an industry-wide solution to a growing humanitarian need.

“It wouldn’t have happened without insurance,” Hoare said. “Our market was critical to this because we could provide the transfer risk to the shipping companies. That kind of situation is quite unique, and because it’s one that we didn’t necessarily expect, it meant that as an industry we had to adapt our skill set and the data sets that we had at our disposal and we had to dig deeper into our expertise and experience in providing solutions in a difficult and challenging environment.”

There are many examples of the insurance industry adapting and adapting to the challenges clients face, and Hoare identified cyber and climate as two areas of the ecosystem that benefit from this innovative and improvisational thinking. Cyber ​​threats are constantly evolving as technology advances and threat actors become more sophisticated than ever, he said, and specialty insurance plays a key role in providing solutions, often with very little historical data.

Understanding the nature of the specialty insurance market

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

“Insurance has historically been about tangible insurance, but that’s changing,” he said. “From 2020 90% of the value of S&P 500 companies was tied up in intangible assets. So that’s where we have to look. But we have to look at those things in a different way than just trying to take what we’ve been doing for the last 100 years and repackage it and call it something else.

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

Munich Re’s Syndicate has taken a clean approach to reaffirm its commitment to the green solutions space, Hoare said, bringing in a team of experts capable of covering the full range of insurance requirements in the sustainability sector.

“Basically, we’re making sure that as specialty insurers we’re adapting rather than just trying to replicate and rebrand (the existing design) because that’s not working these days,” he said. “You have to be innovative, look at what your customers want and deliver something different. That often requires different expertise, and then you have to factor in the capital we need to deliver that solution and how we can make sure we get that capital back.”

Green solutions – a natural fit for an insurance offer

Insurance is the basis for creating a market for “green solutions,” Hoare said, and is often the driving force behind climate-friendly solutions that provide protection and support — without which those solutions might never get off the ground. Munich Re Specialty Group embraces climate change as an opportunity rather than a risk, as confirmed by the statistic that last year global investment in sustainable energy development surpassed investment in fossil fuels for the first time.

In terms of numbers, the market for sustainable solutions has reached a tipping point and Hoare expects to see exponential growth over the next 30 to 40 years. This is a time of change and transition, he said, and specialty insurance is well positioned to make that transition possible. And while this represents a major economic opportunity, it also allows insurance companies to become drivers of positive social change.

“We bring capital to deployment by taking some of the risk out of that capital,” he said. “For example, if you look at performance guarantees, I think that shows a fantastic example of what our Green Tech Solutions unit brings. When you buy a new solar panel, you are building up capital for a payback period of over 30 years. Just as you look at any other investment, you need to assess whether your asset, in this example a solar panel, will be up and running over that period of time. It can seem quite risky, so you can see why people might be hesitant to invest.

“Then Munich Re comes in and we can pretty much remove that performance risk for a price. This then opens up the opportunity for capital that can be invested in research and development because we have taken a lot of the risk away. So first and foremost it’s a commercial side for us, but there’s also a strong sense of purpose, which is good because it creates more opportunities to advance green technologies.”

This sense of purpose is embedded in the DNA of the entire Munich Re Syndicate team, said Hoare, which, although based in London, has a global footprint. London is one of the leading centers for sustainable capital, and being the heart of where a large amount of capital is invested in the renewables sector allows the team to see first-hand how their efforts are paying off.

“Having access to this capital, along with our brokerage community, as we work with brokers all the time, creates strength in the financial services sector in London,” he said. “Putting everything together just shows the concept of why the whole is greater than the sum of the parts in action.”

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