German reinsurer Munich Re has developed an insurance cover that will boost renewable energy projects in India by guaranteeing polluters in developed countries carbon credits from their investments in renewable energy projects in developing countries such as India.
The insurance cover — the Kyto Multirisk policy — is expected to lead to more investments into renewable energy in countries such as India. Under the Kyoto Protocol, there is a facility, where polluting companies, instead of improving their carbon dioxide output, invest in renewable energy projects. In return for their investments, the polluting companies receive emission credits.
"The Kyoto policy goes beyond the traditional cover. If it is a solar plant or wind energy, we are guaranteeing a minimum level of electricity generation. We are also covering at providing political risks," said Ludger Arnoldussen, member of the board of management, Munich Re.
He added that companies are willing to invest in such projects because in many cases, it is cheaper than optimising their own facility. The investor could be anybody, it could be an electricity producer in Japan or Germany or anywhere else in the world.At present, foreign companies, which do not have a presence here, are wary of investing because of their lack of knowledge of local markets and concerns that investments may not bring about desired benefits. The Kyoto Multirisk policy, which will be introduced worldwide soon, is aimed at addressing these concerns.
Earlier this year, Munich Re has set up a risk-trading unit that looks at securitisation of insurance risks. The company has proposed the introduction of a `cat bond’ or catastrophe bond (an insurance-linked security) that would provide protection to insurance companies from having to pay out large claims following an epidemic.
According to Mr Arnoldussen, health is not traditionally so much reinsured, but instances of worldwide pandemics such as the Bird Flu have shown that this risk will be difficult even for reinsurers to cover. “What we have proposed is that this could be a risk that we could pool and bring to the capital market as another form of cat bond which would cover increase in morbidity or mortality,” he said.
He added that the success of this instrument would depend on primary insurers to see the need to transfer the risk and what would be the price the capital market will be charging for the protection.
The insurance cover — the Kyto Multirisk policy — is expected to lead to more investments into renewable energy in countries such as India. Under the Kyoto Protocol, there is a facility, where polluting companies, instead of improving their carbon dioxide output, invest in renewable energy projects. In return for their investments, the polluting companies receive emission credits.
"The Kyoto policy goes beyond the traditional cover. If it is a solar plant or wind energy, we are guaranteeing a minimum level of electricity generation. We are also covering at providing political risks," said Ludger Arnoldussen, member of the board of management, Munich Re.
He added that companies are willing to invest in such projects because in many cases, it is cheaper than optimising their own facility. The investor could be anybody, it could be an electricity producer in Japan or Germany or anywhere else in the world.At present, foreign companies, which do not have a presence here, are wary of investing because of their lack of knowledge of local markets and concerns that investments may not bring about desired benefits. The Kyoto Multirisk policy, which will be introduced worldwide soon, is aimed at addressing these concerns.
Earlier this year, Munich Re has set up a risk-trading unit that looks at securitisation of insurance risks. The company has proposed the introduction of a `cat bond’ or catastrophe bond (an insurance-linked security) that would provide protection to insurance companies from having to pay out large claims following an epidemic.
According to Mr Arnoldussen, health is not traditionally so much reinsured, but instances of worldwide pandemics such as the Bird Flu have shown that this risk will be difficult even for reinsurers to cover. “What we have proposed is that this could be a risk that we could pool and bring to the capital market as another form of cat bond which would cover increase in morbidity or mortality,” he said.
He added that the success of this instrument would depend on primary insurers to see the need to transfer the risk and what would be the price the capital market will be charging for the protection.
Via|The India Economic Times
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