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The insurance sector comprises a vast and complex web of stakeholders, and when it comes to aligning the industry with a net-zero future, each stakeholder has an important role to play. Icebreaker One’s SERI (Standard for Environment, Risk and Insurance) team is looking to accelerate the mission to achieving net-zero through the creation of innovative insurance products and tools. One of these tools is a Climate-Ready Building Passport (C-RBP), which the SERI team believes could provide value across the insurance ecosystem.
A C-RBP can provide stakeholders access to currently under-utilised data such as Building Information Modelling (BIM) data. It can also complement and add additional data elements to the primary and secondary modifiers already used in catastrophe models such as building age, build and flood risk defences. But where does the value lie for the insurance sector?
A client-centric industry
At its core, the insurance market is incentivised to service clients. Insurers want to secure and expand on their customer base, and the C-RBP offers a means to do so. The passport has the potential to capture additional data on the built environment, this coupled with existing data from third-party catastrophe models means that insurers can achieve more accurate, timely data on perils such as storms and floods. The benefits of this might materialise as improved risk pricing for their clients as well as the opening up new avenues of innovation.
The symbiotic benefits of the C-RBP mean that a building owner can gain access to open exposure data and in turn better understand the climate risks their building faces. A more informed client presents better risks for insurers and reciprocally, this can bring down premiums for the building owner. And, with Lloyd’s prioritising policy that supports a client’s energy transition, a C-RBP could prove a useful tool for building owners to exemplify this transition.
For those looking to invest in the built environment, the C-RBP could offer a more extensive foundation for green mortgages. Currently, Energy Performance Certificates (EPC) are being used as a basis for providing Green Mortgages. Nationwide, for example, is offering £500 cash-back for customers purchasing EPC-A rated properties. Unfortunately, EPC data is inaccurate with errors in both measurement standards and practices. SERI’s shared data infrastructure and the C-RBP it is looking to create could provide a more sound, standardised and extensive basis for awarding these green mortgages.
Innovation and accuracy
Risk Modellers are an essential part of this ecosystem too. It is their primary focus to assess hazard and vulnerability, examining the impact that a changing climate can have on these components. Insurers can then run stress-test scenarios to determine the potential impacts on their portfolio. Through the use of a C-RBP, risk modellers can create more accurate risk models. And, while an increased quantity of data doesn’t necessarily typify better risk models, it’s hard to underestimate the value of more untapped data. BIM data for example, comprises geographical information, cost data and design data and could provide more detailed 3D data on risks spanning the lifetime of a building.
The operational efficiencies that can be gained from SERI’s C-RBP are evident across the value chain and this is especially true for insurance brokers and other intermediaries. This, coupled with the appeal of leveraging new technology and creating more localised innovation centred around individual needs. With both insurers and clients accessing new levels of data from different sources, brokers will be able to more accurately assess the complex risk’s their clients face and find a suitable insurance policy. The rise of open banking forced Banks and FinTechs to innovate and find new ways to engage with customers. Similarly, SERI’s shared data ecosystem could be the catalyst needed to create new services that are net-zero aligned such as specialist climate change brokers.
Regulatory pressure tightens
With large insurers set to have their climate risk response stress-tested this year by the Bank of England’s Prudential Regulation Authority (PRA), exemplifying net-zero behaviour is now of paramount importance. This, on top of mounting regulatory pressure around ESG commitments, the approaching date of mandatory TCFD and the UK governments Green Taxonomy plans.
But, the insurance sector is no stranger to incoming regulation and the introduction of Solvency II demonstrated that those companies that prepared for the ensuing regulation were best equipped. SERI’s C-RBP could be a fundamental tool in highlighting that a company is in fact prepared, proving that it has incorporated climate risks into its business strategy and is committed to its sustainability targets when it comes to the built environment.
What’s more, the passport could bring operational efficiencies in the realm of regulation, potentially easing the friction that arises in TCFD and ESG reporting. Using a C-RBP could improve the task of examining a company’s environmental impact, creating a more structured and efficient disclosure process with standardised data up-front and therefore removing the laborious task of going through long reports.
Further work on regulation and governance is needed to truly unlock the SERI ecosystem and join the dots between the data and technical standards. But, as the SERI team progresses, more innovative use-cases will no doubt come to the fore. For now, the C-RBP represents a truly valuable tool for insurance and a model that we can expand from.