Significant insurance and reinsurance industry players are backing a new non-profit start-up that aims to drive forwards the development of an open standard for sharing climate data, with the goal of enabling better design and development of climate risk related financial products along with the use of artificial intelligence.
Icebreaker One launched last week at the Davos 2020 annual meeting of the World Economic Forum (WEF).
The initiative has received grant funding from the UK government and is backed by a range of major global companies, including from the insurance and reinsurance world broker Aon and underwriter Brit Insurance, alongside Arup, Agvesto, Bird & Bird, Dais LLP, Lloyd’s Register Group and the University of Cambridge.
The goal is to bridge the data gaps between finance and climate change, enabling more capital to be unlocked to support the world’s adaptation, transition and response to climate related risks, with insurance and reinsurance a key target area of finance.
A new Standard for Environment, Risk and Insurance (SERI) has been developed to assist in designing, testing and developing financial products with the backers of Icebreaker One.
“As large catastrophic events occur with higher frequency, the UK’s insurance market is under pressure to evolve. SERI has the potential to transform the sector, enabling the insurance industry to innovate around climate change and the new kinds of risk it creates, by developing both current and new products to maintain the UK’s position at the forefront of global insurance,” the announcement explains.
The outcome is hoped to be the stimulus of climate-friendly financial product innovation and delivery of new products in 2020.
While there is a focus also on mobilising insurance sector capital into climate relevant investments, the data sharing aspect is perhaps more interesting on the risk transfer product side, as it could be a valuable way to achieve greater standardisation in climate risk data and greater transparency across the industry as a whole.
One of the expected benefits of delivering on a standard for more open climate risk data sharing is to enable the use of artificial intelligence across pools of data, to enable the insurance and reinsurance industry to make more productive use of the information that is often locked away within their businesses.
“Currently, valuable data – with the power to deliver public and private good – is kept submerged in ineffective data lakes. Icebreaker One will work with key stakeholders to overcome the legacy culture and business models that keep data ‘closed’ rather than being shared or open, to catalyse data access across the sector,” the initiative hopes.
By standardising climate related risk data, unlocking it and enabling the use of artificial intelligence and machine learning software across it, the sectors understanding of its exposures and how best to respond to them could be significantly improved.
Which could help to stimulate development of more robust climate risk transfer product design methodology, better hedging techniques and facilitate the development of more climate risk transfer products that cede risks into the capital markets.
Investors are looking for greater granularity of data and certainty in the insurance and reinsurance industry’s ability to analyse, understand and accurately price climate exposed risks.
Icebreaker One could be a step in the right direction towards delivering greater visibility of the industries exposure and its understanding of it, helping to drive more capital market interest in climate related insurance risks as an asset class.
The availability of better and more standardised data on climate risks can also help in designing better risk transfer products, including enabling greater use of parametric triggers and also electronic risk trading.
“Without sorting out our ‘data plumbing’ we hinder our ability to use the wealth of data at our disposal in unlocking the abundance of capital needed to address our climate emergency,” Icebreaker One explains.
The hope is to drive innovation through standardisation and sharing of data, enabling more advanced techniques to be used in the assessment, analysis and understanding of climate risks in the insurance industry, which can ultimately drive better product design decisions and stimulate the creation of new risk transfer toolsets and categories.
Of course, data standards have been tried before and have largely failed in the insurance and reinsurance industry. From the proposed use of XML standards for weather, climate and catastrophe data back in the late 1990’s, to more recent attempts to encourage standardisation of risk data. So far the industry has been too far behind in its use of technology to really harness these and deliver substantial change.
But the insurance and reinsurance industry is more advanced in its use of technology now and the development of standards to help improve the response to climate change may be the catalyst needed to actually deliver on a meaningful data focused step-forwards for the sector.
Developing a common language for climate risk and related data points could significantly benefit the sectors ability to understand the exposures it carries, insure against climate risk, make better and more climate focused use of its asset base, while also creating new classes of climate risk transfer that could tap into investor appetite in the capital markets.
Industry backing and participation is key in such initiatives, but so too will be their willingness to release data for use in the project and eventual sharing across the industry.
Data is one of the most valuable assets major players in insurance and reinsurance have today and is largely held closely.
It will be interesting to see whether those backing Icebreaker One enter into this in the spirit of the data standard they are trying to create, openness and data sharing is key. But if companies look to hold their data too closely then this initiative won’t be able to deliver on the transparency that is needed.
Gavin Starks, founder of Icebreaker One, commented on the launch, “The time for theory is over—we need rapid and meaningful action. The threat of climate change to the global economy is tangible, and the increase in catastrophic climate events is capable of bankrupting markets and even nation-states. We are already witnessing insurance in some areas becoming untenable – which is a genuine threat to communities and wider society. The time to act is now to help channel our abundance of capital to a carbon net-zero future. We are working with some of the most influential organisations in the world to plan policies and regulation to protect citizens, our environment and our economy; to unlock the power of unused and underutilised data to enable governments and business to respond effectively, responsibly and sustainably to the threats posed by the climate emergency. We encourage anyone with relevant interests to join us on this critical challenge of our time.”
Volker Buscher, Chief Data Officer at Arup, added, “Responding to climate change and futureproofing the market is vital – and working with Gavin and senior industry figures is a big opportunity to make real-world data work harder, to evolve investment strategies, shine a light on inefficiencies and better understand risk. It’s of benefit to everyone that we create the working blueprint for the freer sharing and licensing of data-at-scale that can be a shot in the arm to climate-affected financial products and services.”