‘The unsolved puzzle of climate finance’: Munich Re Specialty’s Richardson

Climate finance is one of the most important yet still unsolved aspects of the climate challenge, according to the chief underwriting officer (CUO) of Green Solutions at Munich Re Specialty, Julian Richardson.

In an interview with Insurance Day, Richardson says in theory climate finance encompasses a broad range of financial instruments, mechanisms and strategies that aim to mobilise and allocate funds to climate-related projects and programmes.

“There is a good understanding of the climate science and much of the community engaged in this scientific field understand and hold a broad consensus on our societal goals. These goals are to decarbonise our energy systems, coupled with the need to make human and ecological systems more resilient to the effects of climate change,” Richardson says.

In practice, climate finance can take various forms, including the requirement of large-scale capital deployment and reallocation into renewable energy or energy transition projects.

“To make those projects investible, the insurance industry has an important role to play and must continue evolving to effectively cover those projects and enable sustainable growth,” Richardson says. “For the practitioners engaged in this important work, there is the need to work together with partners across industries on the practical questions of who is going to allocate the required capital on such a scale to counter this part of the climate challenge.”

Green Solutions’ goals

Munich Re Specialty launched its Green Solutions division in May 2023, a portfolio of insurance products and services aimed at supporting the net-zero ambitions of its clients, particularly in the renewables market, with the goal of becoming a leading provider of commercial specialty and primary green insurance risks by 2030.

Richardson joined the re/insurer a few months later from Parhelion Underwriting, an energy and climate risk finance company he founded in 2006, which specialises in non-traditional risk issues affecting investment in clean energy and climate finance markets. He has also worked for Marsh and GE Insurance Solutions and was an adviser to the UK’s Department for International Trade on insurance and resilience finance.

“I’ve seen the role of the re/insurance industry evolve from being a passive and reactive holder of climate risk, through to becoming an informed commentor and information supplier on climate risk through using data and assessing its impacts,” Richardson says. “Today, we can see re/insurers as active participants in the climate finance conversation.”  

That transition was driven by taking a much more informed and sophisticated approach to assessing the impacts of climate change. As this trend continued, the industry became an important source of information and communication on climate risk. Richardson highlights Munich Re’s work from the 1970s onwards as one of the first modellers of global climate change impacts as a “paragon” of that evolution, saying it remains a recognised industry voice with its regular reports on natural catastrophes.

He says: “It’s pleasing to see our insights still provide critical details for how businesses are impacted, allowing them to more proactively manage their climate-related risk and volatility. We have been focused on developing new and innovative derisking solutions, reallocating capital to renewable projects and adjusting our underwriting decisions, such as when Munich Re Specialty pivoted towards setting up the Green Solutions portfolio. Taking this step has enabled us to access and work with exciting, growing industries that have a substantial opportunity to harness our expertise and product offering.”

Policy roadmaps

Richardson says Nationally Determined Contributions (NDCs) are an important roadmap detailing each country’s aims and ambitions to reduce their greenhouse gas emissions and mitigate the impacts of climate change.

“Having this roadmap and framework in place allows investors to identify investment opportunities by having clear, strategic priorities and actions to follow, outlining how individual countries aim to adapt to climate change impacts,” he says.

“The NDCs also prompt the consideration of the financial support this action requires and may help with capital allocation and deployment. The NDCs also can act as a ‘guide’, which represent the country’s contribution to the global effort to address climate change, acknowledging this is a global challenge that needs international collaboration,” he adds.

Richardson stresses the transition to a low-carbon economy includes significant investment in renewable energy assets, which will need insurance solutions. Similarly, new technologies are being developed and deployed, which presents an opportunity for Munich Re Specialty, he adds, such as offering new performance guarantees and product warranty solutions to accelerate the uptake of new technologies.

“We see an opportunity for Munich Re Specialty to deploy capital, resources and expertise across our core markets, so our aim has been to establish our proposition by building strong, leading products and services in the energy transition space”
_{Julian Richardson
Munich Re Specialty}

He continues: “Fundamentally, we see an opportunity for Munich Re Specialty to deploy capital, resources and expertise across our core markets, so our aim has been to establish our proposition by building strong, leading products and services in the energy transition space. Core to this is positioning our underwriters and claims handlers as market experts and thought leaders.”

Furthermore, as new markets emerge, such as carbon trading markets and natural capital, new products are similarly required. The Green Solutions portfolio aims to provide tailored solutions for these areas.

In terms of challenges, Richardson highlights the protection gap.

“We believe we can further engage with the private sector, which has an important role to play for disaster risk finance solutions,” he says. “The insurance industry has been active in its thinking and we have been looking at new ways to incorporate elements of blended finance concepts that can add greater depth and value to the role insurance can play in building resilient communities,” he adds.

CUO in a climate context

Richardson spent the first 10 years of his career working on oil and gas insurance, which he says positioned him to help establish one of the world’s first boutique climate finance businesses – Climate Change Capital (CCC) – in 2003. As part of this work, CCC set up a carbon investment fund and provided investment advice on climate-related opportunities and threats.

In 2005 he set up Parhelion, supporting clients to venture into renewable energy, carbon markets and climate compatible investment opportunities. In 2023, he brought part of his team to join him at Munich Re Specialty, combining Parhelion’s thought leadership with the leading insurance capabilities offered by Munich Re Specialty. As CUO for Green Solutions at Munich Re Specialty – Global Markets, Richardson says he has maintained his focus on increasing awareness of the insurance industry’s vital role in enabling the energy transition. 

“It is critical the team ensures the continuous development of a profitable portfolio of renewable energy business,” he stresses. “In addition, I work with my team to identify and strive to roll out new, innovative products and services. These need to be both scalable and profitable.”

There is also an important communication role. Richardson says: “Internally, as CUO I need to retain the support of senior management and ensure we are investing appropriately in the resources necessary to foster profitable growth. Externally, it is vital Munich Re Specialty communicates the role insurance can play within the climate context to investors and policy makers.

“Insurers should be bolder on presenting the tools it has at its disposal to have an impact in this work and we need to keep conversing with these important stakeholders to remind them. As businesses with large pools of capital, we have the potential to enable large-scale deployment to protect businesses.”