Global shield against climate risk

Mark Maroon:

Welcome to Climate Check. This is Mark Maroon, Vice President and Head of Portfolio Management and Reinsurance at America Modern, a Munich Re company. Today, I'm joined by Florian Gruson, Head of Global Sales and Distribution at Munich Re, and Stefan Schüssele, Senior Manager of Public Sector Business Development at Munich Re. Thank you both for joining me today.

Florian Makoto Gruson:

Hi, Mark. Thanks for having us.

Stefan Schüssele:

Yeah, thank you, Mark.

Mark Maroon:

Absolutely. So, Florian, let's start with you. Um, would you mind just real quick describing your role at Munich Re and kind of explain how we are partnering with other institutions in addition to governments to advance solutions toward climate vulnerable developing countries?

Florian Makoto Gruson:

Sure, Mark. And, and thanks for the question. As you mentioned, I am the head of sale, of global sales and distribution, but more importantly, uh, we are the Munich Re public sector business development team within global sales and distribution. And this team also known as PSBD plays a central role in coordinating the dialogue between various stakeholders. Some of you, some of them you've just named, including sovereign governments, but also multilateral development banks, such as the World Bank, also insurance brokers, um, and we tie them up with the various Munich Re business units, such as underwriters, client managers, sitting in the markets, uh, around the globe.

Now, uh, Mark, towards this end, we play different roles. We are, in one case, a client relationship manager for the multilateral development banks. We're also center of competence. And this is where we also tie up with market forums. So other organizations, such as our competitors, where we group up and we try to find business opportunities, uh, with the sovereign governments, for example, the Insurance Development Forum, also known as the IDF.

We also get, uh, very, uh, deep in the weeds when it comes to business development with the local business units. So we help them develop their public sect- uh, public sector strategy, but also develop new products that can support some of the initiatives that are happening, uh, on the ground there. Now, at the moment, uh, Munich Re's public sector, uh, insurance business is concentrated in four key areas.

One, of course, is in mature markets like the U.S. We're providing capacity in various insurance classes for local municipalities, also considered to be a public sector. We do support natural catastrophe schemes, uh, uh, in various markets a- around the globe, infrastructure projects. But also, and as we mentioned earlier, very extensive relationships with the multilateral development banks.

Uh, and here we provided a number of solutions to help them actually lend more money to the vulnerable nations that need it the most. So in the meantime, we're really excited about a lot of these activities that we have going on right now, especially with, uh, the, the sovereign governments.

Mark Maroon:

No, that's great. Definitely appreciate the overview, Florian. So Stef, I'm just transitioning over to you real quick then. Maybe, can you just introduce yourself and tell us a little bit about your role?

Stefan Schüssele:

Yes, Mark. Happy to do so. So my role is actually I'm leading that small team of public sector business development experts. As Florian has explained, we are dealing primarily with the relationship management, uh, with development banks, World Bank, uh, to name one, but also the Asian Development Bank. I think here over the past years, we have been very successful in establishing business relationships with these banks, primarily on the credit insurance side.

Development banks are using that vehicle like private insurance to leverage private sector capital to make more use of their own kind of resources. And in addition, as Florian has ex- has explained, we are helping our client management teams in developing own public sector business. Here, we have been successfully conducting workshops last year, which were more topic related. And this year we are, uh, doing regional, uh, workshops with client management teams around the world.

Mark Maroon:

So what do you expect some of the topics will be with some of these regional workshops that you're holding?

Stefan Schüssele:

Well, it really depends on, uh, on the need of the, of the teams. But we are proposing, of course, closing the, the, the [inaudible 00:04:14], uh, protection gap, uh, but also, uh, topics like energy efficiency. Uh, here, as you may know, we have very, uh, innovative products within our group from HSB, but also using systems like blended finance in order to cooperate with the public sector. But again, it really depends on the need of the, of the business unit, uh, what kind of topics we are addressing.

Mark Maroon:

That makes sense. And you guys said, reference the fact that you work with a couple of different institutions like the World Bank. So what does that relationship like? How do you try to work a little bit more closely with them to help develop some different solutions across the industry?

Stefan Schüssele:

Uh, maybe Florian, I take that first. Particularly the World Bank and a- as you may know, the World Bank is actually a group of development banks consisting of three different development banks, which is the IBRD, the original one, International Bank for Reconstruction and Development. They primarily focus on lending to sovereign governments. In addition, there's the International Development Agency, basically doing the same as, uh, IBRD, but focusing on the most vulnerable countries.

So they have a kind of cutoff line by per head of, uh, uh, income. And then the third pillar of the World Bank Group is the International Finance and Corporation. And the International Finance and Corporation, IFC, is focusing on lending to the private sector. And here is where we had t- to sort of, say, [inaudible 00:05:39] first business relationship. Here, the IFC, again, is looking out, uh, to, uh, other part, the partners like banks, but also to insurers in order to leverage their own resources.

And we have started doing that on a trade finance side, but then moved also into the project finance side. And here we participated successfully with the help of our colleagues from our credit department in something which is quite innovative, which is called MCPP, Managed Co Lending Portfolio Program. It's a difficult word, I know. But, uh, MCPP is cooperating with the private sector on different levels.

But we as Munich Re joined one of the three pillars, which is then ensuring loans that IFC is handing out to its partners. And we participate in these loans by ensuring part of it. And that again, leads to the so called capital leverage, private sector capital leverage that the IFC is, uh, looking for. So this were sort of the initial, um, touch points and business relationships with the, uh, World Bank. And that is, has been then replicated with other banks, such as the Asian Development Bank. And again, in close cooperation with our colleagues from the credit department, we are trying to ex- uh, expand that business field.

Mark Maroon:

Thank you. No, that sounds, that sounds great. I appreciate the overview on that. So one of the things that I was kind of curious about changing subjects ever so slightly, was our participation in COP28, COP28, right? And so I don't know, Stefan, Florian, who might be the better one to speak to this, but maybe could you just give us a little bit of an overview of who makes up this group and why participation from entities like Munich Re and others are important?

Florian Makoto Gruson:

Thanks a lot, Mark. And le- let me kick off the discussion. So usually we have been a very regular member, uh, visiting the COP, um, that have taken place in various, uh, nations also in, in various years. But I think in the past there has been very much focused on being represented there also to talk about the topic of climate change. Give the view from the insurance industries of being one of the representatives and I think we've done, uh, quite a fantastic job with some of the, uh, participations in the past, uh, most recently in the COP27, uh, in Edinburgh, um, a very, uh, of course, pointed discussion between Dr. Wenning, Ernst Rauch, uh, and of course, uh, the, the rest of the community, yeah.

I think the big development now at the COP28 in Dubai last year, and the one I have to say we're most excited about was that for the, let's say, for the first time, the topic of insurance, uh, as part of the global, uh, climate financing has now become to the forefront. And specifically, there were a few things that, uh, I just want to point out, which actually made us, uh, very excited. For, the first was that, uh, for the first time, um, after the, the topic of loss and damage was discussed in the COP27, one year later, uh, the topic of insurance and risk sharing mechanisms, as it's framed in the, in the formal documentation was formally agreed by all of the, the participants.

And so what this means for us as an industry is that insurance is a viable option to finance climate risk. Uh, and also the funds that are being used towards this can be allocated towards, uh, insurance. Now, the second, uh, very big development was the topic of the Global Shield. Now, while the Global Shield has been around for some time, obviously, uh, some major developments there as well, which causes, uh, a lot of, uh, positive outlook, uh, at the moment.

One being the fact that more, uh, na- nations, uh, donated money. It's always good that, uh, the, the funds are increasing. And the second is that, um, for the first time, and these were the discussions that Stefan and I had with the German government, was that, uh, premiums could be subsidized by these funds.

Now, this is important as many of these vulnerable nations are not, uh, let's say, fully accepting insurance as an option. However, if the premiums are subsidized by, uh, the Global Shield, uh, in the, uh, the beginning stages, this may, uh, convince many of the nations to adopt insurance as a potential, uh, option for the overall climate resilience framework of their country.

Mark Maroon:

So digging in a little bit, maybe for the uninitiated, can you maybe just give us a real quick overview of what exactly the Global Shield is? And then maybe start to talk a little bit about what some of the next steps are there?

Stefan Schüssele:

The Global Shield is actually more a process and an organization that helps countries to better approach, uh, their climate risks. The Global Shield will help countries to, uh, identify a so called, uh, in-country coordinator, which should be actually part of the, of the government of the respective country. And that is because the countries should be driving and having ownership over the whole process once they applied to participate in the Global Shield.

And I think this is really one of the major differences from the approach taken before. I think countries struggled in the past by identifying which financing option is best suitable for them in, in the particular circumstances, and very often maybe that, uh, have led has actually led to confusion, uh, on, on the gov- country government side.

What the Global Shield now is trying to do is helping government to engage in a more structured process to firstly identify their risks and vulnerabilities, and then actually also helping the countries to, uh, approach the private sector with request for proposals to help them developing suitable risk transfer solutions.

And on top, as Florian has said, it'll also provide financing. During the process of identifying all the analysis, but also then, uh, via premium subsid- subsidies, uh, to help getting solutions off the ground. Uh, so I think these are really the two major, um, differences from, from previous approaches. First, country ownership. Second, premium support for solutions.

Mark Maroon:

So Florian, we've spent the last few minutes talking about Global Shield. Would you mind giving us, uh, some anticipated next steps?

Florian Makoto Gruson:

Well, thanks a lot, Mark, for the question. Uh, and we've had quite a number of discussions with the Global Shield. And most recently, we did even have the Global Shield as well as the German government represented, uh, within Munich Re, uh, with a live webcast where we talked about, uh, what are the implications now, as well as the next steps.

Now, Mark, currently the Global Shield has identified eight so called Pathfinder nations, as well as one region where they want to put the focus of their initial efforts. And one where they've been actually successful has been Ghana. Others include Pakistan, Bangladesh, the Philippines, Malawi, uh, Jamaica, Costa Rica, as well as the region of Pacific small island developing states.

So, these are already a number of countries that they want to tackle in the first stage. But there will be more countries, uh, are going to be included, especially as the, the popularity a- and also the understanding of the Global Shield is, is slowly emerging. Now, we as Munich Re, we are in frequent dialogue with the Global Shield, and we want to not only find opportunities where we can support their discussions, uh, as Stefan mentioned, really bringing the understanding of what insurance means, what role it can play to these vulnerable nations.

But more importantly, we're also looking where can we actually, uh, add our expertise and capital to these nations, uh, that sorely need it. So there's a lot of work to do. We're, we're, we're just at the beginning of this journey, but certainly, uh, there is a, a very exciting, uh, journey ahead of us.

Mark Maroon:

Absolutely. So we're getting back to one of your earlier comments that you had made that I thought was pretty on point. Certainly, we recognize that there are protection gaps across the globe for communities that are potentially disproportionately affected and maybe there's an opportunity here for the Global Shield to help close that gap. So, how do you consider your role in terms of just sort of trying to be the bridge between some of these underserved communities versus the governments that might be looking for a little bit of help but don't really know where to begin?

Stefan Schüssele:

I think for us, we really believe that the Global Shield provides a much more structured approach than before, as I have mentioned. And here we would like to position Munich Re to participate on different levels in the Global Shield, uh, process. That could be either during this, what is so called in country dialogue, where the analysis are done. And I think here Munich Re has sufficient and enough and plenty of, uh, expertise that we can actually bring into value during that process, also data, of course.

But then when, uh, finally, when it comes to this request for proposals for the, the request for developing solutions, I think that is our stronghold. Here we can bring on our full pricing expertise and product development expertise. And that is, I think, uh, where we ca- probably can make most value. And then finally, as a third pillar or third role in, in that, uh, Global Shield process, we want to be the risk taker. We want to engage in bringing those solutions to life and, uh, taking on these risks.

Florian Makoto Gruson:

If I may add, uh, Stefan, I think it's important to note, uh, also for the audience that Munich Re is not and cannot do this on our own. So certainly, uh, we need the entire insurance industry as well. And therefore the, our participation into organizations like the Insurance Development Forum, where we sit side by side with the insurance brokers, but also with the primary insurance companies, as well as some of our peers, like Swiss Re, like Hanover Re, where we can share information and also try to tackle some of these bigger problems together.

So certainly we can play our role, as, as Stefan mentioned, providing activities, providing capital, but certainly this is an entire insurance industry initiative that will finally help to close the protection gap.

Mark Maroon:

I think that's a great way to put a bow on the conversation. Certainly all of us are in this together. Nobody's going to be able to solve this problem on their own, right? Like, certainly we've all got our parts to play and hopefully we can continue to find better ways as an industry and as through collaborations with government and other private entities to make this a little bit more tenable moving forward.

So, Florian, Stefan, thank you so much for joining us today. We really appreciate you taking the time to come on. And listeners, if you liked this episode, please subscribe to our podcast for easy access to past and future episodes of Climate Check. And always, for more information, go to munichre.com/climate check. And we'll see you next time.