Insurance Without Limits
When we think of energy, we tend to think in terms of limits.
As in, there is a limited volume of greenhouse gasses that the earth’s atmosphere can absorb; there is only so much coal; how deep must we drill the deepest hole until we find out that there is no more oil?
But what if energy resources and the future human endeavors they power were truly limitless?
That seems to be the spirit of the collaboration between Swiss Re Corporate Solutions, the corporate insurance division of the Zurich-based insurer and reinsurer Swiss Re, and Solar Impulse, an ambitious project to build and fly a solar-powered plane around the world.
Launched on its global trip in 2012 by Swiss explorer Bertrand Piccard and his partner, businessman Andre Borschberg, Solar Impulse, insured by Swiss Re Corporate Solutions, is within weeks of achieving its goal.
As of early July, the plane was in Seville, Spain and was preparing to embark on the last two legs of a 17-leg around-the-world trip, with the goal of landing at its starting point in Abu Dhabi.
Light as a small family car, but with the wingspan of a Boeing 747, the plane is powered only by solar panels on the surface of its enormous wings and has an insured value of $12.5 million.
For Juerg Trueb, a Zurich-based head of environmental and commodity markets for Swiss Re Corporate Solutions, the partnership with Solar Impulse is an example of the speed at which technology is advancing, and the imperative on the part of insurance companies that they keep pace with that change.
If you go beyond the symbol, these are the tangible things that we do and that resonate in the context of Solar Impulse.– Juerg Trueb, head of environmental and commodity markets for Swiss Re
After all, in providing aircraft liability, hull and personal accident insurance for the plane’s two-man crew, the insurer is in essence underwriting a prototype, a craft for which there is no loss history because its kind has never been seen before.
“Solar Impulse stands for the dream to power a plane by renewable energy,” Trueb said.
“It’s a symbol for technology innovation and clean energy production and a sustainable business that allows us to both prosper and conserve nature,” Trueb said.
That notion of sustainability, is something Swiss Re Corporate Solutions and its parent company puts into action, not only in the types of projects it insures, solar and offshore wind farms, for example, but in the degree of sustainability engrained in its investment portfolio.
“If you go beyond the symbol, these are the tangible things that we do and that resonate in the context of Solar Impulse,” Trueb said.
In addition to the awards it’s won for sustainable business practice and ethics, Swiss Re, through its Swiss Re Foundation, has for more than decade funded the International ReSource Award for Sustainable Watershed Management, which carries with it a $150,00 prize awarded by an international jury.
Solar Impulse already owns an aviation record for the longest continuous flight by a solar plane. In 2015, it flew from Nagoya, Japan to Hawaii. That flight lasted 117 hours and 52 minutes and covered about 4,473 miles.
Of course Solar Impulse isn’t the only solar-powered craft making news this summer. Juno, NASA’s solar-powered space probe, entered Jupiter’s orbit in early July, after a voyage of some 1.8 billion miles over five years.
New Policies Fill Gaps in Green Energy
Ambitious underwriters are learning to make hay while the sun does not shine. And when the wind does not blow, and the rain does not fall on watersheds.
For years, the intermittent nature of nature vexed the green energy industry. Until recently it was addressed as a technical problem of storage and backup generation.
But recently, several insurers developed coverage that offer a financial recovery approach. To be sure, the demand is coming primarily from lenders and capital investors that back green power projects. The effect, if the markets grow, will be to help normalize both power and profitability.
While the mechanisms for the new programs are new, financial weather instruments are not, said Michael J. Perron, senior vice president for Northeast property placement at Willis Towers Watson, and a 2016 Risk & Insurance Power Broker® in the alternative utilities category.
“Wind productivity was down over the last couple of years, and banks are requiring some type of protection from insureds. The industry has these wind curves and they are just not performing.”
Generators themselves are not yet asking for coverage, said Perron, “but banks are saying, ‘your charts are nice but we need protection.’
“Risk managers at the generators may feel very comfortable with the long-term performance, but banks are asking for more. In some cases the lenders or investors are named as loss payee.”
In general, Perron said, the new demands from backers and the coverage being offered to meet them is beneficial in direction, if not always in degree.
“We do push back on occasion,” he said.
Using an analogy from earthquake coverage, he noted that “we had one client for which the bank demanded $100 million of protection. We modeled the case and found that the 500-year event would cost $20 million so we suggested buying $35 million in coverage.”
Weather Risk Transfer
Underwriter GCube brought its “weather risk transfer mechanism” to North America to respond to “increasing demand from U.S. project-financed wind operators, notably those refinancing or going through acquisitions,” the company stated.
“Utilities and independent power producers have directly cited below-par wind resources as a contributing factor to net losses in 2015 and the first quarter of this year,” it said.
“This financial underperformance, if left unchecked, threatens to undermine the reputation of wind energy as a low-risk, reliable investment — particularly with the emergence of new investors with less tolerance to lower returns.”
“There can be a straight trigger payment, or more complex arrangements more like a cash flow swap or collar.”– Bill Hildebrand, executive vice president, GCube
The basic concept, said Bill Hildebrand, executive vice president of GCube Insurance Services, is a contract with wind or hydro power generators. If the wind or rain is insufficient for the generators to provide the power that they have contracted to deliver, then parametric triggers would result in a payment under the contract.
“We are seeing increased requirements from insureds on behalf of their capital providers for revenue certainty,” said Hildebrand.
“At the same time, we have had carriers come to us with contracts they would like to distribute. Weather insurance has been around for a long time with the same interest in consistency and smoothing of revenue. What is new is this type of flexible contract that we are bringing on behalf of the capacity behind us.”
GCube is using Lloyd’s syndicate papers for backing. As a result contracts can be made on different terms.
“There are options,” said Hildebrand.
“There can be a straight trigger payment, or more complex arrangements more like a cash flow swap or collar.”
The contracts are being offered only to wind and hydro generators, not solar at this point. That is for two reasons: Solar has not seen the dips that the other green energy types have, and because the performance data on solar is not as extensive.
Early in May, a consortium of carriers executed a 10-year proxy revenue swap with a large U.S.-based wind farm. The arrangement allows for hedging wind volume risks for wind farms, to try to ensure stable revenues despite uncertainty of intermittent wind.
Advances in risk modeling and maturity of risk appetite were credited with making the deal more long-term in scope.
The 10-year agreement is designed to secure long-term predictable revenues and mitigate power generation volume uncertainty related to wind resources for the 100-plus MW farm.
But solar is not being neglected. Early in May, specialty insurer Sciemus launched a policy to protect the owners of solar farms against a lack of sunlight.
The policy pays if levels of sunshine fall below an agreed amount, and it is available as a hedging instrument for solar farm operators for up to 10 years.
Other lack of sun insurance schemes are available, but they are tied into property damage programs, experts said. The Sciemus insurance can be purchased as a stand-alone.
The insurance is index-linked and pays a fixed price per unit of lost sunlight at the end of each 12-month period. It is calculated on the sunlight either at the solar farm or at the nearest weather station.
The coverage is available in Europe and North America, and Sciemus plans to roll it out into the Middle East and North Africa later this year.
Electronic Waste Risks Piling Up
The latest electronic devices today may be obsolete by tomorrow. Outdated electronics pose a rapidly growing problem for risk managers. Telecommunications equipment, computers, printers, copiers, mobile devices and other electronics often contain toxic metals such as mercury and lead. Improper disposal of this electronic waste not only harms the environment, it can lead to heavy fines and reputation-damaging publicity.
Federal and state regulators are increasingly concerned about e-waste. Settlements in improper disposal cases have reached into the millions of dollars. Fines aren’t the only risk. Sensitive data inadvertently left on discarded equipment can lead to data breaches.
To avoid potentially serious claims and legal action, risk managers need to understand the risks of e-waste and to develop a strategy for recycling and disposal that complies with local, state and federal regulations.
The Risks Are Rising
E-waste has been piling up at a rate that’s two to three times faster than any other waste stream, according to U.S Environmental Protection Agency estimates. Any product that contains electronic circuitry can eventually become e-waste, and the range of products with embedded electronics grows every day. Because of the toxic materials involved, special care must be taken in disposing of unwanted equipment. Broken devices can leach hazardous materials into the ground and water, creating health risks on the site and neighboring properties.
Despite the environmental dangers, much of our outdated electronics still end up in landfills. Only about 40 percent of consumer electronics were recycled in 2013, according to the EPA. Yet for every million cellphones that are recycled, the EPA estimates that about 35,000 pounds of copper, 772 pounds of silver, 75 pounds of gold and 33 pounds of palladium can be recovered.
While consumers may bring unwanted electronics to local collection sites, corporations must comply with stringent guidelines. The waste must be disposed of properly using vendors with the requisite expertise, certifications and permits. The risk doesn’t end when e-waste is turned over to a disposal vendor. Liabilities for contamination can extend back from the disposal site to the company that discarded the equipment.
Reuse and Recycle
To cut down on e-waste, more companies are seeking to adapt older equipment for reuse. New products feature designs that make it easier to recycle materials and to remove heavy metals for reuse. These strategies conserve valuable resources, reduce the amount of waste and lessen the amount of new equipment that must be purchased.
Effective risk management should focus on minimizing waste, reusing and recycling electronics, managing disposal and complying with regulations at all levels.
For equipment that cannot be reused, companies should work with a disposal vendor that can make sure that their data is protected and that all the applicable environmental regulations are met. Vendors should present evidence of the required permits and certifications. Companies seeking disposal vendors may want to look for two voluntary certifications: the Responsible Recycling (R2) Standard, and the e-Stewards certification.
The U.S. EPA also provides guidance and technical support for firms seeking to implement best practices for e-waste. Under EPA rules for the disposal of items such as batteries, mercury-containing equipment and lamps, e-waste waste typically falls under the category of “universal waste.”
About half the states have enacted their own e-waste laws, and companies that do business in multiple states may have to comply with varying regulations that cover a wider list of materials. Some materials may require handling as hazardous waste according to federal, state and local requirements. U.S. businesses may also be subject to international treaties.
Developing E-Waste Strategies
Companies of all sizes and in all industries should implement e-waste strategies. Effective risk management should focus on minimizing waste, reusing and recycling electronics, managing disposal and complying with regulations at all levels. That’s a complex task that requires understanding which laws and treaties apply to a particular type of waste, keeping proper records and meeting permitting requirements. As part of their insurance program, companies may want to work with an insurer that offers auditing, training and other risk management services tailored for e-waste.
Insurance is an essential part of e-waste risk management. Premises pollution liability policies can provide coverage for environmental risks on a particular site, including remediation when necessary, as well as for exposures arising from transportation of e-waste and disposal at third-party sites. Companies may want to consider policies that provide coverage for their entire business operations, whether on their own premises or at third-party locations. Firms involved in e-waste management may want to consider contractor’s pollution liability coverage for environmental risks at project sites owned by other entities.
The growing challenges of managing e-waste are not only financial but also reputational. Companies that operate in a sustainable manner lower the risks of pollution and associated liabilities, avoid negative publicity stemming from missteps, while building reputations as responsible environmental stewards. Effective electronic waste management strategies help to protect the environment and the company.
This article is an annotated version of the new Chubb advisory, “Electronic Waste: Managing the Environmental and Regulatory Challenges.” To learn more about how to manage and prioritize e-waste risks, download the full advisory on the Chubb website.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Chubb. The editorial staff of Risk & Insurance had no role in its preparation.