By Jonas von Oldenskioeld
My seven-year-old daughter recently asked me a big question: What is insurance?
Coming from someone who's spent their entire professional life in the industry, there's not just one straightforward answer. Strictly speaking, the insurance industry protects against the financial impacts of premature death, injury, loss of property or earning power, legal liability, or other unexpected events. However, the industry's overall contribution to the economy goes much further, playing a pivotal role in building resilience as societies develop.
Take the issue of climate change, for example. The most recent U.N. climate report indicates that over 3 billion people are highly vulnerable to global warming today. While the insurance industry is neither a direct polluter nor a climate change mitigation policy setter, it is nonetheless one of the critical pillars of a more sustainable future.
Over 40 straight days of rain might sound like something out of the Bible. Korea is no outlier in facing rising natural catastrophe risk. But that was the reality of summer 2020 here in Korea. That year alone, extreme weather caused 1.2 trillion won ($986 million) of property damage nationwide. Undoubtedly, the direct impacts of climate change are a significant aspect of the liability side of an insurer's balance sheet. Furthermore, research conducted by the Swiss Re Institute shows that in a worst-case climate change scenario, the Korean economy could shrink by 12.8 percent by the middle of this century as a result.
Such losses aren't always insured and can leave businesses and individuals financially devastated and struggling to recover. Globally natural catastrophes caused economic losses of $270 billion in 2021 alone, of which a mere $111 billion was covered by insurance. There are multiple reasons for this, including coverage costs and the difficulty of accurately modelling and pricing climate change risks to calculate insurance premiums.
Insurers can help mitigate the impacts of climate change by investing in and refining tools and technologies that measure climate-related risks and supporting government and private sector efforts to invest in greener infrastructure and energy sources.
What has been happening in Korea is very inspiring. The bold pledge of the Moon administration last October for COP26 in Glasgow to cut greenhouse gas emissions to 40 percent below 2018 levels by 2030 put the country at the forefront of the region's efforts to confront climate change. Much of the focus in this effort will be on energy and industrial policy, but achieving this target will require greater buy-in from the business community and society as a whole. It will involve costs, but the costs of doing nothing will be much higher and more widespread.
There is a high degree of public support for renewable energy in Korea, but building wind and solar farms come with a high degree of uncertainty. Recognizing and proactively addressing some of the risks around renewable energy will be key to financing projects identified as green under the evolving K-Taxonomy framework, and translating Korea's Green New Deal vision into reality on the ground.
As renewable energy generation continues to grow, so does the financial risk posed by the inherent volatility of the resources that make it possible. But Korea's experience shows how insurers can support the transition to a low carbon economy by giving governments and businesses the confidence to adopt new technologies in green infrastructure.
The Ministry of Trade, Industry and Energy (MOTIE) increased renewable energy requirements for power producers with more than 500 megawatts of capacity to 12.5 percent by the end of 2022, up from the previous target of 10 percent. To meet this target, Korea's offshore wind farm industry will need to undergo an unprecedented expansion. The insurance industry not only provides risk assessment and management support for such projects; we also have a wealth of experience gained from working on similar initiatives around the world and are committed to sharing that knowledge with our partners in Korea.
At Swiss Re, we played an active role in developing the Offshore Code of Practice (OCoP), a best practices guide for risk management in offshore wind farms. We have been able to apply that experience to support the Korean offshore wind farm industry, starting in 2014 by providing risk management services to the Tamra offshore wind farm on Jeju, the first commercial project of its kind in the country. We were also the leading reinsurer providing risk management solutions across the entire lifecycle of the Southwest Offshore Wind Project, from construction through to operation.
However, the industry also needs to look ahead and find new solutions to help protect against mounting risks. In the case of renewable energy, which is often directly affected by the volatility of the weather, something called "parametric insurance" has been shown to be an excellent complementary tool in other countries to strengthen financial tolerance against weather variability.
Parametric insurances are based on independently verifiable and unambiguous parameters, such as measured wind speed, triggering a predefined payment quickly, simply and without lengthy adjustments. Such solutions are not permitted under the current system in Korea but could be an essential tool to secure broad financial support for investments in renewable energy.
These examples show how, by offsetting the risks involved in making these necessary investments in our future, the insurance industry can foster the development of renewables and help Korea meet its ambitious energy goals.
Therefore, the next time I get asked what insurance is, my answer will be that the insurance industry's job is to help reduce the financial harm caused when bad things happen. But I'll also explain that we ensure new things better so that the future can be built with more confidence and fewer concerns about risks. In the face of climate change, both of these roles have become more relevant than ever.
Jonas von Oldenskiold is a principal officer at the Korea Branch of the Swiss Re and chair of the Insurance Committee of the European Chamber of Commerce in Korea (ECCK).
My seven-year-old daughter recently asked me a big question: What is insurance?
Coming from someone who's spent their entire professional life in the industry, there's not just one straightforward answer. Strictly speaking, the insurance industry protects against the financial impacts of premature death, injury, loss of property or earning power, legal liability, or other unexpected events. However, the industry's overall contribution to the economy goes much further, playing a pivotal role in building resilience as societies develop.
Take the issue of climate change, for example. The most recent U.N. climate report indicates that over 3 billion people are highly vulnerable to global warming today. While the insurance industry is neither a direct polluter nor a climate change mitigation policy setter, it is nonetheless one of the critical pillars of a more sustainable future.
Over 40 straight days of rain might sound like something out of the Bible. Korea is no outlier in facing rising natural catastrophe risk. But that was the reality of summer 2020 here in Korea. That year alone, extreme weather caused 1.2 trillion won ($986 million) of property damage nationwide. Undoubtedly, the direct impacts of climate change are a significant aspect of the liability side of an insurer's balance sheet. Furthermore, research conducted by the Swiss Re Institute shows that in a worst-case climate change scenario, the Korean economy could shrink by 12.8 percent by the middle of this century as a result.
Such losses aren't always insured and can leave businesses and individuals financially devastated and struggling to recover. Globally natural catastrophes caused economic losses of $270 billion in 2021 alone, of which a mere $111 billion was covered by insurance. There are multiple reasons for this, including coverage costs and the difficulty of accurately modelling and pricing climate change risks to calculate insurance premiums.
Insurers can help mitigate the impacts of climate change by investing in and refining tools and technologies that measure climate-related risks and supporting government and private sector efforts to invest in greener infrastructure and energy sources.
What has been happening in Korea is very inspiring. The bold pledge of the Moon administration last October for COP26 in Glasgow to cut greenhouse gas emissions to 40 percent below 2018 levels by 2030 put the country at the forefront of the region's efforts to confront climate change. Much of the focus in this effort will be on energy and industrial policy, but achieving this target will require greater buy-in from the business community and society as a whole. It will involve costs, but the costs of doing nothing will be much higher and more widespread.
There is a high degree of public support for renewable energy in Korea, but building wind and solar farms come with a high degree of uncertainty. Recognizing and proactively addressing some of the risks around renewable energy will be key to financing projects identified as green under the evolving K-Taxonomy framework, and translating Korea's Green New Deal vision into reality on the ground.
As renewable energy generation continues to grow, so does the financial risk posed by the inherent volatility of the resources that make it possible. But Korea's experience shows how insurers can support the transition to a low carbon economy by giving governments and businesses the confidence to adopt new technologies in green infrastructure.
The Ministry of Trade, Industry and Energy (MOTIE) increased renewable energy requirements for power producers with more than 500 megawatts of capacity to 12.5 percent by the end of 2022, up from the previous target of 10 percent. To meet this target, Korea's offshore wind farm industry will need to undergo an unprecedented expansion. The insurance industry not only provides risk assessment and management support for such projects; we also have a wealth of experience gained from working on similar initiatives around the world and are committed to sharing that knowledge with our partners in Korea.
At Swiss Re, we played an active role in developing the Offshore Code of Practice (OCoP), a best practices guide for risk management in offshore wind farms. We have been able to apply that experience to support the Korean offshore wind farm industry, starting in 2014 by providing risk management services to the Tamra offshore wind farm on Jeju, the first commercial project of its kind in the country. We were also the leading reinsurer providing risk management solutions across the entire lifecycle of the Southwest Offshore Wind Project, from construction through to operation.
However, the industry also needs to look ahead and find new solutions to help protect against mounting risks. In the case of renewable energy, which is often directly affected by the volatility of the weather, something called "parametric insurance" has been shown to be an excellent complementary tool in other countries to strengthen financial tolerance against weather variability.
Parametric insurances are based on independently verifiable and unambiguous parameters, such as measured wind speed, triggering a predefined payment quickly, simply and without lengthy adjustments. Such solutions are not permitted under the current system in Korea but could be an essential tool to secure broad financial support for investments in renewable energy.
These examples show how, by offsetting the risks involved in making these necessary investments in our future, the insurance industry can foster the development of renewables and help Korea meet its ambitious energy goals.
Therefore, the next time I get asked what insurance is, my answer will be that the insurance industry's job is to help reduce the financial harm caused when bad things happen. But I'll also explain that we ensure new things better so that the future can be built with more confidence and fewer concerns about risks. In the face of climate change, both of these roles have become more relevant than ever.
Jonas von Oldenskiold is a principal officer at the Korea Branch of the Swiss Re and chair of the Insurance Committee of the European Chamber of Commerce in Korea (ECCK).
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