Emerging risks | Growth Opportunities | APAC Insurance
Emerging risks | Growth opportunities | APAC insurance
Browse insight:
Lessons from ASEAN
Whitepaper navigation:
Last December, six reinsurers got together to establish a new reinsurance pool in ASEAN. The pool, headed by Malaysia Re and backed by Guy Carpenter, provides coverage for onshore wind farms, onshore solar panels and energy storage.
Members include Indonesia Re, Vietnam National Reinsurance Corporation, Cambodian Reinsurance Company (Cambodia Re), Thai Reinsurance Public Company Limited, and National Reinsurance Corporation of the Philippines.
The pool targets renewable energy accounts with sums insured of between US$50-200 million.
“Companies that invest in new technology rely on insurance to protect that investment. If they can’t get that insurance at the right price, then this is going to hold the investment back,” says Tony Gallagher, APAC Chief Executive Officer for Guy Carpenter. “This was the rationale behind setting up the ASEAN pool. We wanted to find a way of building the (re)insurance capacity for green energy initiatives, which otherwise may not have had that support.”
The pool not only brings together fragmented capacity from across the region. It also seeks to centralise underwriting expertise and claims management experience.
“If you have half a dozen companies underwriting insurance independently, then you need at least half a dozen claims managers and half a dozen engineers. With a pool, we need only one or two. This is something that everyone can get behind because we have a collective resource,” says Gallagher.
Ahmad Noor Azhari Abdul Manaf, Chief Executive Officer of Malaysia Re, says that the underwriting capabilities of many ASEAN (re)insurers are still lagging behind those of the large European and American players. He predicts that the launch of the new ASEAN pool, along with the support offered by Guy Carpenter, will help (re)insurers in the region develop new expertise.
“Bringing new technology into the region is quite easy. Managing that technology and understanding the risk is far harder. That’s why it is so important to have a good partner who can offer their technical know-how as well as capacity,” says Manaf.
The ASEAN Centre for Energy (ACE) has set the goal of having 35% of total installed power capacity coming from renewable power by 2025 – a target that now looks as though it will be met. In its latest energy outlook report, ACE predicts renewables will account for 37.9% of installed capacity by 2025.
Data from the International Renewables Energy Agency suggests a steady increase of renewable energy in Asean over the next 25 years, from 20% of total power generation (which was the level in 2017/2018) to 37% by 2050. However, in its ‘Transforming Energy Scenario’ (a more optimistic outlook. where governments are more aggressive in pushing the renewables agenda), the share of renewables could rise to as much as 85%.
“Reinsurance has a vital role to play within this expanding use of green energy,” says Manaf. “The pool structure that has been launched will help develop capacity and improve the understanding of risk. Both of these elements are especially important as we transition away from fossil fuels.”
This is not to say that setting up the ASEAN pool has all been plain sailing. Manaf admits that there have been quite a few hurdles to overcome along the way. One of the key ones was dealing with so many different insurers with various risk appetites.
“It was quite difficult to bring in people from across the region to a common ground,” he says. “For example, should the pool be underwriting nat cat risk in Indonesia? If you ask a reinsurer in a non-cat exposed market, they may prefer not to. It’s all about how much risk pool members are willing to take. This was the biggest challenge in terms of putting in capacity for the pool itself.”
This is one of the reasons that the architects of the pool chose to limit the type of risk being underwritten to onshore wind and solar generation (plus storage capacity). Offshore renewable energy, which can be harder to underwrite and is often subject to higher levels of natural catastrophe risk, is not part of the ASEAN pool yet.
“It’s a step-by-step process. We need to get people comfortable with the pool first before we can develop it,” says Manaf.