Bermuda CEOs spell out approach to climate risk

Bermuda re/insurers are equipped to lead the world on climate risk finance but must first examine the opportunity at both the macroeconomic and corporate levels, Pina Albo, the chief executive officer of Hamilton Insurance Group told delegates at the inaugural Bermuda Climate Summit on 25 May.

Albo was on the panel titled ‘CEOs, Climate and Capacity', alongside Marc Grandisson, CEO of Arch Capital Group; Lara Mowery, global head of distribution at Guy Carpenter; and Tim Neilander, senior legal adviser at African Risk Capacity Group. The panel was moderated by Jeffrey Manson, head of global public sector partnerships at Renaissance Re

“At the macro level, there’s a really big opportunity for Bermuda here to really put its face on the map, to lead on the topic of climate, how to improve resiliency, how to mitigate the risk, how to underwrite the risk, and how to make statements on how we're running our business,” Albo said.

“At the corporate level, as a service industry, we don't produce a lot of CO2, we insurers and reinsurers. However, it still doesn't stop you from taking a look at what you do, and how you can improve your carbon footprint.”

At the same time, the industry can look for indirect ways to reduce carbon emissions, she said.

“For that, we have two levers: our underwriting and our investments. On the underwriting side, what risks do we write? Should we be writing them? And how should we be writing them? That's one aspect. But, more importantly, I look at what risks we should actually be targeting to write. There, there's an increased emphasis and a real opportunity in more sustainable and green technology. On the investment side, making sure that your investments also make a statement is important.”

A lot of the innovation required in climate risk is going to happen through partnerships, she said, and highlighted MIT University’s programme that sponsors innovative start-ups, including InsureTech.

“At the end of the day, we can't control Mother Nature, but we can control human nature, and human nature is building in places that we shouldn't be building,” she said, adding that re/insurers should work with community initiatives that aim to prevent damage “before disaster strikes”.

Mowery said that innovation presented the industry with a question: “How do we get reinsurers to engage and dedicate capacity to climate protection when climate change increases volatility in results?”

“We're dealing with catastrophe modelling and financial modelling, and the volatility of climate in and of itself, even without climate change. But the better the risk framework that you can put around these things as they're evolving and developing, the more comfortable capital is going to be, to say, ‘Yeah, I'm gonna take that chance, and I'm going to invest in the space’.”

It is crucial, she added, that the policyholder and even the insurance company understand whether the coverage being offered meets their specific needs at that point in time. Part of this is ensuring policy language is clear and up to date, and not just left unchanged as it rolls forward, year after year. Experience of the COVID pandemic had shown, she said, that incorrect assumptions about coverage could lead to 1000s of lawsuits. Parametrics have been around for a long time and so can’t be described as an innovation, she said, but they are a potential solution to simplifying coverage.

Neilander highlighted the support of the Bermuda Monetary Authority (BMA). The African Risk Capacity Group set up a hybrid mutual insurance company - ARC Insurance Company - in Bermuda, in 2013, to serve 35 African Union member states. ARC chose Bermuda over Switzerland, he stressed, in its search for a jurisdiction with a regulatory environment suitable for issuing insurance policies to sovereigns.

“They did a massive study of all of Africa, then bumped on to Switzerland, the UK, the US and finally settled on Bermuda as a friendly, innovative, creative place.”

Grandisson said Bermuda continues to thrive from innovation.

“We still have this entrepreneurial, innovative spirit in Bermuda, which I think is very important. It tells whoever wants to cede risk, or share risk, Bermuda is open for business, always open for business. We’ll try and find a way to make it work the best we can,” he said. “This is a place where new things can evolve and happen, and that is largely due not only to the BMA, which provides a great regulatory framework, but to the people.”