Innovating Carbon Credit Insurance
Ep.43
Chris Slater and Max Chee
In this episode of the Reinventing Finance Podcast by Tom van der Lubbe and Nikolaus Sühr, we had the pleasure of talking with the investor, Max Chee Head of Aquiline Technology Growth, and the investee, Chris Slater Founder & CEO at Oka, The Carbon Insurance Company.
In the Podcast Chris and Max share insights about:
📌Their professional background
📌Challenges around the Quality and Legitimacy of the existing carbon market
📌What Problems OKA is solving and the secret sauce behind
📌What “retiring” refers to in terms of carbon emissions and carbon credits
📌What potential Max sees in the carbon insurance market\
📌Biggest challenges concerning new tendencies, ESG regulations, etc.
📌Who are the market participants?
📌How big is the potential of insurance?
📌How OKA works and what it exactly insures
📌Risks that apply when insuring carbon (reversal risk and methodology)
📌The role of reinsurers
📌The role of culture in reluctancy to get involved in the carbon market
📌Go-to-market and product
📌Advice they would give to an insurance CEO (large carriers) to aboard the topic
Nick: Hi everyone. Welcome back to yet another episode of Reinventing Finance. Today Tom and I actually have two amazing guests who will introduce themselves shortly. But before we do that, Tom, how are you this fine afternoon?
Tom: I am very fine. Looking forward to our conversation.
Nick: Awesome. I hope the same goes to you, Max and Chris. How are you?
Max: Good. Thanks.
Nick: Awesome. Maybe for those of our listeners, viewers who might not know who you are and what you do, why don't you just briefly introduce yourselves to our audience? Maybe Chris, you go first.
Chris: Great. Thanks Nick and Tom. And thanks for having us on. Rare opportunity for investor and investee to come on and talk about a new venture. So thanks for having us on. So yeah, Chris Slater, founder and CEO here at Oka the Carbon Insurance company. I guess a background predominantly in insurance over 20 years. First business was a business called Simply Business, co-founded that business. I guess one of the sort of preeminent early pre-insure tech businesses, you know, using technology data to transform how small commercial business was transacted. We've got an online trading business, agency business here in the UK, scaled that. And then me personally, you know, I built that, I did everything within that business outside of running tech and hopped over to the US and launched that business in the US. And just as things were getting interesting, actually Travellers bought us in 2017. And prior to that really is where Max and Aquiline came into the storey. We had a great relationship with Aquiline and actually with their support really catapulted our ability to enter the US market. So yeah, I had a great ride there. I actually never thought I'd come back into insurance, if I'm honest. I spent the last five years in venture, both investing and then helping businesses grow. And then this idea of insuring carbon credits was one that obviously we'll spend the rest of the session maybe talking about, was an idea that we came up with sort of the start of 2022. And yeah, Oka was born out of the back of a belief that insurance is the sort of missing part of the capital stack in the carbon markets.
Max: Great. Hey, everyone. My name is Max Chee, I'm the head of Aquiline Technology Growth, we're a venture capital fund with offices in New York and London. Our focus is on both InsurTech and the broader FinTech ecosystem. And we make investments everywhere from Series A and above, and in some cases seed investments as well across the system. And I'm originally from Toronto, Canada. I've lived in New York for several years now. I've been in venture capital for 20 years, including starting the venture capital group within Aquiline in 2017. So very good to be on this podcast and look forward to the auction. Thank you.
Nick: Awesome. Again, great to have you here and I guess the Simply Business story wasn't too bad for Aquiline that this might opted you for a little seed investment. But it's, you know, trust matters, right? Maybe that's the kind of theme here as well. And, Chris, you alluded to insurance being one of the missing or one of the key missing pieces in carbon markets, carbon offset markets are working. So maybe walk us through that a little bit. Which problem are you solving at Oka?
Chris: Yeah, I mean, it's a pretty simple equation, really, the issue that exists in the carbon markets, which have been around for, you know, the voluntary carbon market has been around for about 20 years, has really sort of scaled in importance in recent years. But in my sort of period of discovery through 2022, where I was talking to buyers of credits, also talking to developers and registries and intermediaries, but really coming in at the angle from, you know, buyers of carbon credits in this voluntary space, looking to purchase credits and retire them as part of their net zero goals, they're ultimately doing it to effectively try and meet net zero targets. And the issue that kept coming up, it was that there was a lack of transparency, a lack of quality of gun.
Nick: You've just mentioned on a side and buy them and retire them. Could you just what that means? I think it because we might have some viewers and listeners who are not that deep into the carbon markets, but it's focused on the voluntary carbon market, I think, for this discussion. But if you could just kind of explain that briefly.
Chris: Yeah, if you take a step back, a carbon credit is effectively a tonne of CO2 that's either being removed from the atmosphere or being avoided in terms of being put into the atmosphere. So in buying carbon credits, what corporations and our lens is US based corporations, what they're doing is buying credits, because in calculating their internal emissions, there's a negative on their environmental balance sheet, they've got carbon that they're putting out into the atmosphere, and they buy these credits to effectively offset to meet and retire them. And in retiring them, it's effectively using that what they what they're saying is they're buying that credit, it links to a project, it's a tonne of CO2 that's been sequestered, and they retire them in that they use them to offset the emission that they have put into the atmosphere. So that's the, that's the concept really of the credit. So yeah, so then back to the question around what is awkward do well, I guess that the issue that kept coming up in my conversations was one of risk, one of risk around, I'm a buyer of these credits, and I'm taking all the balance sheet risk in the if something happens to the underlying project, then there's no recourse and insurance is the missing piece is that insurance historically does a very good job at transferring risk and allowing one innovation and two liquidity in markets to increase and in the moment in the carbon market, because of the lack of transparency, because of the challenges around quality, we'll come to that maybe a little bit later on, then insurance, we see insurance as an opportunity to put those products into the market, transfer the risk and increase the opportunity for corporations to ultimately buy more credits by taking risk.
Nick: Maybe Max, over to you. So you are an investor in Oka from you've also shared previously that you've invested in Cloverly, a digital market marketplace in the space. So do you have a certain thesis, it sounds a little bit like do you have a thesis about the carbon markets that you might share with us that could inform our listeners on how you think about this?
Max: Sure. No, absolutely. I think with the Paris agreements, I think that the world at large is sort of is focused on reducing emissions and not trying to, you know, reduce global warming to no more than 1.5 degrees by 2030. And I think what we saw; we have a lot of corporate investors in our fund. And what we saw was really a lot of interest. I think that the new sort of C-suite officer is a chief sustainability officer. And so we saw a lot of sort of regulatory interest and a lot of corporate interest in really trying to reduce emissions. And as Chris mentioned, one of the ways you do that is through buying carbon credits. It's not the first line of defence, but first you have to look at your own sort of what the business does, how you can proactively reduce emissions and everything you do in your business. But a lot of businesses will need in order to become sort of net neutral from a carbon emission standpoint to purchase these carbon credits. So given the grand swell of activity as we approach sort of 2030, as we see how climate change is impacting the environment and also just the impetus to do something for it, we thought there were a lot of secular tailwinds in the market to make an investment in the space. And, you know, if you think about building out a voluntary carbon credit market, you know, to ensure a well-functioning market, I think you do need things like insurance, hence Oka and then with Cloverly, that's a digital marketplace as well to sort of enable both, individuals and consumers as well as businesses to more efficiently purchase carbon credits. So those are sort of the two earlier stage investments we made in space. And that's sort of the sort of 10,000 foot, you know, reason why we made that those two investments.
Chris: Just to build there, Nick, on what Max is talking about, especially on the regulatory side; because I think what you're starting to see is the voluntary market move much more in a direction of increased compliance. So one of our driving forces behind standing the business up was in talking to those chief sustainability officers that Max talks about, you know, they talk about the financial risk of the credits and the projects that they're investing in. They talk about their reputational risk, which is heightened this year as you get accusations from Wall Street Journal, Bloomberg, Guardian. But it's the regulatory risk. You've got climate disclosures coming down the pipe. The SEC this year was mooted to mandate that. It's now due out Q1 next year. But California has led the way recently with a couple of bills that effectively takes about, you know, 10,000 of the largest organisations under the need to basically to those 2030 targets, outline how they plan to get to 2030, how they plan to reduce emissions and the carbon credits that they're buying. So suddenly you've got these suite of risks at a board table that are escalating and the volume of transactions starting to grow. And therefore, again, insurance just in the eyes of the buyer, these corporations, they buy insurance for many of the other assets that they buy. It just makes sense to us to say, OK, well, ensuring carbon credits is going to be a default as we move forward into the future.
Tom: What do you see then as the biggest challenges in those? Let's say it's a kind of new development or not so new, but I mean, it's the regulation is deregulation is coming faster and faster now. What are the biggest challenges?
Chris: In terms of biggest challenges I mean, biggest challenges to the market is that it's still in its sort of adolescent stage. So it's still, you know, they're still trying to figure out there's lots of quality concerns, lots of challenges around accusations being made as to that credit equalling a tonne of CO2. And actually out of COP the last, you know, the last couple of days, what you're starting to see is the market respond. You're starting to see the registries who effectively govern the issuing of these credits coming together to say, look, let's work together to raise the bar in terms of making sure that this credit does equal a tonne. You're seeing the trade bodies come together in terms of making sure that the principles that are being adhered to by corporations when they declare that they're buying these credits, that it isn't greenwashing, that it does actually mean that the environmental claims that they're making, they can they can stand behind. So I think in terms of challenge, for me, I'm incredibly bullish on the direction of the business and the market long term like this. We have no other solution. As Max said, corporations need to reduce emissions. That is the first place to go. But there's always going to be unabated emissions. And therefore, the carbon market is the viable option for us as a global market to participate, to redirect funds, to sequest carbon. It's sort of like what's the direction of travel over the next 12, 18, 24 months, which is maybe a little bit more unknown by virtue. But again, coming back to what's coming out of COP this week, you're seeing you're seeing strong responses and strong collaboration, which will hopefully push the market forward in confidence. Go on, Max.
Max: Yeah, I'd add that. I think Oka solves one of the main challenges of the market, and that's making sure these carbon credits are legitimate and they do what they're sort of intended to do because it's a voluntary market. And so the challenges that the market faces, I think OKA well can help the market be more legitimised, be more validated. And that, in turn, should create a more robust market for these carbon credits. And that should lead to further growth in the market. So OKA sort of benefits from that growth in the market. But in a way, they can also aid the growth of the market by creating more legitimacy and a little bit more validation to the buyer of the carbon credit. So we think that's why OKA is a very exciting company, because it has a sort of win-win proposition in terms of growing the market and creating more legitimacy. So that's also why we're quite excited about it.
Nick: So kind of taking that step towards the market, right? I think we've from the conversations I've heard. Potentially four part market participants, you know, on the buy side, you have corporates, investors and potential intermediaries. And on the sell side, you have, again, probably intermediaries because then intermediary and developers, right? Are there key pieces in the market missing or are those the kind of main market participants?
Chris: Yeah, they're the majority of them. I think you missed a couple there in terms of the developers. So, right. I mean the supply of these credits, journey of the credit really starts with the funding of the project, the development project getting off the ground, the operational risk that sits around, you know, whether it's a direct air capture plant that needs to scale or it's a reforestation project. You know, there's a suite of risks that sit there. And investors are looking for the insurance industry to come in and help them mitigate some of the delivery risks that sits there. You then take that all the way through to the developer can now issue credits. You have then got registries and registries being these governing bodies built for an industry maybe 10 or 15 years ago, but are now, you know, a lot of criticism of them. They're trying to modernise. They're trying to improve. The science continues to move forward. And they're trying to adapt and adopt them as quickly as they can. So you've got the registries who then effectively govern the issuing of the credits. And then, as you say, you've got the intermediaries that are playing a role between the developer selling the credit and the buyer or the end corporate buyer. And our product, our first product, Nick, is very much aimed at the point the credit has been created. So the buyer then gets into the market to go, right, we want to buy these credits. Then what are the risks that sit around that credit? That means that they can't stand behind that credit, that it could be invalidated, that it could be impaired in some way. But yeah, back to your question there. They're the sort of main protagonist. And you've got auditors, you've got rating agencies that have come into the space over the last four or five years, again, trying to solve the problem of risk. You know, the buyer's going, OK, could we could we appoint somebody that or a firm that could help us adjudicate whether that project is of the highest quality? And the likes of the Solvera's and BeZero's and other rating agencies have been born out of that as a, you know, as a sort of financial bond would be rated. But insurance, back to Max's point, insurance plays that ultimate role of going, look, we're putting capital at risk to say that that project, you can stand behind the credit that's been created from that.
Nick: And how big is the, let's say, maybe both the voluntary carbon markets themselves, but then also the insurance potential right now and, you know, kind of for the next 10, 20 years? What do you know, whatever figures are publicly available or something?
Chris: Yeah, I think I can give the public data and then Max and I can talk about where we think the market may go. I mean, the voluntary carbon market was two billion dollars’ worth of credits traded in 2022. I think it's going to look pretty similar this year at a challenging H1, but volumes are starting to pick up and indeed prices certainly for the higher quality credits are increasing through Q4. I think then if you look at what that translates to from an insurance standpoint, our estimates are that on the post issuance side, the credits, the credit product that we built is probably about a hundred million dollar market today. So nascent. But the market is expected to scale to that voluntary carbon market anywhere between one hundred billion dollars and half, you know, five hundred billion dollars are the numbers that are touted quite often in the press and in the markets. And you're seeing the capital come in; you're seeing the likes of BlackRock coming with five hundred million dollar investment, JP Morgan. So the forecast of the carbon market is that it's going to grow significantly. And then and then really the question is, how big is the insurance market? We quite often the market for me when I speak to industry experts, you know, whether it's reinsurers, Lloyd's, you know, other players, quite likely quite a lot to cyber the early days and how big cyber has become in terms of a market that wasn't around 15, 20 years ago. And I think that's possibly a fair comparison in terms of where this market could get to. We think a sort of twenty five billion dollar market as a minimum is over the course of the next six or seven years. Max, do you want to?
Max: I think that's why this is an early stage company. And, you know, we know the long term trends are very positive. We think there'll be short term bumpiness in terms of where the market evolves. And I think as well, although well sort of evolve as well in terms of sort of meeting the needs of the market and creating insurance products to meet those needs. So, Chris, what I'm interested in, like, what do you think of when you talk to customers? What do they want to ensure against the most? And what is your what are your projects sort of or your insurance trying to prevent risk against? Because, you know, how will someone like, for example, file a claim against the credit will happen? And, you know, because that's something we've talked about. I think it'd be pretty interesting for the viewers to hear about that.
Chris: Yeah. Yes. Because I think the when we think about the credit and what we're ensuring, we're effectively designed our first product to ensure the serial number. You know, think of it like a like a bond that's being rated and then insured. But it's we show the credit certificate number. But ultimately, the perils that we build coverage for are all related to the underlying project. And there's sort of two main buckets. There's the reversal risk. So this is the risk that the carbon gets put back into the atmosphere. And that could be by virtue of a natural catastrophe. It'll be that earthquake, wildfire, infestation, flood, et cetera.
Or it could be something human induced. So a reforestation projects that could be illegal logging or direct air capture plant that could be a crack in one of the pipes that's storing the carbon. So there's a sort of two main areas of sort of reversal risk that basically puts carbon back into the atmosphere where our policy would pay out.
And then there's the invalidation. And this is the sort of assessment of whether the methodology that's been applied is true. So there could be over crediting where a project developer has registered the project, has started issuing credits. And then by virtue of an audit, a couple of years down the line; it's found that those credits, the methodology was incorrect or incorrectly applied. And therefore, too many credits were issued. So therefore, a claim could be brought by virtue of a proportion of those credits being invalidated by the registry. So the sort of two main buckets that we cover are those reversal and invalidation risks. And if you talk to us, you know, as I talk to chief sustainability officers, really the scale of what they care about when they're buying these credits shifts depending on how sophisticated they are. But you've got to remember, they're also selling this as a concept into that board. So as a CFO, you know, at the board soon to be signing of on 10K filing, the credit carbon credits that they're buying; their eyes are drawn towards, well, what are the risks? So what are the protections that are in place against wildfire ripping through and destroying this forest? Now, the risk might be quite limited, but we built the coverage into our first product to address both the economic reasons why people buy insurance, but also the emotional reasons why people buy insurance. So that's the sort of coverages that we put forward. I sort of add just final bits. I guess, Max, there's lots of other coverages and lots of other products that people care about. So political risk is a hot topic at the moment. I think it was Zimbabwe basically took country jurisdiction over some of the credits that could be issued. And therefore, any commercial enterprise that was using those credits as part of their net zero goals, there's risk there that they could be invalidated. We don't cover that today, but it's certainly a risk that exists in the market and something we'd look to perhaps price for in the future.
Nick: Coming back to the market figures just briefly and appreciate that this is kind of total address of the market. I could one extrapolate in your expert opinion from, let's say, these mandatory buffers that most of these projects kind of need in terms of self-development, which I believe is kind of like 10 to 20 percent. That's currently, let's say, what someone needs to keep as a reserve, which indicates that that could be potentially insurable, but also over purchasing on the buyer side, who are not just buying the credits and taking the balance sheet risk, but are already buying 20 percent more. Sometimes I've heard 80 percent more of credits because they really do not want someone to file a reputational or even legal claim against their announced net zero goals. And would that not be an easy triangulation of total insurance potential, knowing fully well that not everyone will buy insurance within that?
Chris: Yeah, yeah. I think what you're talking about there is some separate data points on how the market could be sized. I think there's some challenges in there, Nick. I think on the buffer pool, the buffer pool is very much put in place from a developer's perspective. Developer, as you said, up to 20 percent, rather than issuing 100 credits, they'd release the project and have to set aside 20 for any future claims, predominantly around those exposures. So it covers only for limited elements, but it's not actuarially modelled. It's pretty crudely built out. And therefore, the viability of those buffer pools is actually one of our underwriting data points as we price our own insurance products as to how sustainable, scalable, supportable are those buffer pools for some of the risks. But yeah, you're right. There's a size of those buffer pools. There's then the over purchasing of the credits. But ultimately, what we go by is the size of the market in terms of the number of credits that need to be purchased as you look at the net zero goals that organ corporations are setting. So if you take Shell as an example and their goals to get to net zero, for them to get to net zero based on their current emissions targets, they'd have to buy land the size of Indonesia, I think, plus India to basically be able to have credits to meet their goals in 2030. So there's a huge amount of pent up volume demand that's going to need to be created for these organisations to meet those goals. But what's clear is that there's a market that is going to grow. That's going to grow from that $2 million credits traded today. $2 billion, right? $2 billion, sorry. $2 billion.
Nick: Now, I was just kind of thinking about a percentage figure. But anyway, it was just which would make it easier because I think we can all see the credits. But then I believe that if you were just to take the $100 million, which is the market today, there's a lot of nascency in that. I think that's underrepresenting it. And I just kind of wanted to get my head around and thought that buffers and over purchasing might be an indication of where people are already quantifiably paying for risk. You know, risk, not transfer, but risk management. But anyway, there's too many more super exciting questions that I don't want to side well this conversation here and was very interesting to your thoughts on this.
Tom: I would like to add a question to your show example, because that's also there's a lot of criticism, let's say, on the topic. Because I mean, your show example shows that you can't buy enough, let's say, land to compensate the whole climate problem, so to say. So my question would be, is there a kind of combination of not only taking the example of the carbon credits, also in combination of also avoiding the emissions at all? Because let's say, just also as an answer to this discussion, or do you totally separate the stuff and then say, OK, that's not our topic? We can only focus on those carbon credits.
Chris: I mean, for me, it's really clear emission. I think Max touched on it earlier. Your organisations need to reduce their emissions for us to hit the climate goals. The carbon market will not solve that alone. So emissions need to be reduced. And much debate, again, around the language at COP, around the phasing out of fossil fuels and reduction of fossil fuels, et cetera. We need to see those emissions reduced down. And if the world and the corporations have done their job, then actually the size of the carbon market over time may actually shrink because you don't need to be off emissions. I think that's a long way away. There's no doubt there's industries that have unabated emissions that will need to be offset for us to hit net zero. So yeah, I mean, yeah.
Tom: But that’s not part of your value proposition.
Chris: Yeah, go Max.
Max: No, sorry, I was just going to add that one other thing that I think is a tailwind for the market is we're seeing a lot of accounting type firms and consulting firms come into the market to advice companies on how to measure their emissions and therefore account for that. And I think regulators will want to see that like the SEC and so the first step for corporations to say, okay, what is our carbon footprint? And then once they have that data, they're reporting that data, I think that's when they're going to act upon it. So the whole idea of even having that data, that information might be really powerful and be another sort of tailwind for the market. So I just wanted to mention that when you think about the ecosystem and how that's to evolve. But going back to the fossil fuels, I think carbon credits are just one piece of the puzzle that needs to be solved. And when you think about the challenges around climate change, it's really an all of the above sort of everything has to be done. And I think voluntary carbon credits are just one aspect of it. And it is a nascent market, it will evolve. I think there's some announcements that Chris mentioned even this week about how they're going to improve the verification of credits, improve the transparency of credits, and all that's really important. And so I fundamentally believe, and I'm sure Chris does, that voluntary carbon credits, there is a place in the market for it and it will grow but it is under growing, but it is an early market, even though it's been around for 20 years. We think it's early because it's just getting a lot of attention now because of the greater urgency of trying to do something. So I think the market, well, again, it'll be a little bit bumpy at first, but I think the long-term trend will be positive. And it's really necessary. There's no way if you're like a shell, you can do direct investments into things like carbon capture or into new technologies to try to offset your carbon footprint. But ultimately, carbon credits will be a component of that, we believe.
Nick: So I think we've already touched somewhat around the distribution angle, which is basically how to target buyers and sellers. I think what would be quite interesting is to say, how do you then actually do the underwriting? Because if there's a quality problem, great. So there is in cyber and in insurance, unfortunately, it's a little bit like credit, top line does not mean bottom line. So how do you underwrite and how do you monitor without kind of spilling your beans, obviously, but how do you break that quality cycle?
Chris: Yeah, I mean, it's the question that we've been unpacking really for the last 12 or 18 months as we've built the model out, Nick. And I think where our IP is being built, which is, and also maybe where non-insurance people can't solve this problem, because you've got to take an insurance lens at, okay, what are the risks that each project is subjected to? And I outlined before those big buckets of sort of reversal risks and invalidation risks.
But what we've done is effectively built a pricing and underwriting model that's taken each of those perils and done a very insurance, likely frequency and severity on a, by project type, by location, and then really built out what we think are the proxy factors. Because remember, it's a new product in a new market. So what you're trying to gauge is, okay, what are the risk factors that are going to inform the pricing and the profitability of each of these credits? And that includes developer experience, auditors, registries that the credit's been on. Obviously, things like location and some of the data that we can pull in from rating agencies and satellite imagery on some of the project types is going to be important in terms of continuing to ingest information that gives us a much more accurate view of what's the risk? What's the underwriting price for this risk? And then what's the, and what's the price then that the market's willing to pay for, for that risk as we bring the product to market. But that's the, I mean, that's the challenge. I mean my previous business that simply, you know, we're drawing on a lot of experiences in the team from pricing risks that maybe people didn't like previously, or took a view on not enough data, not the right quality of data to be able to price that risk.
But we think we've got a good starting point. We've taken a very prudent approach to, to the pricing of each of these risks, because it's a new business, you've got to get out of the gates, you've got to be right in both top line revenue, but also deliver underwriting profits. So yeah.
Nick: So what type of experience, because it's probably quite hard, the market for a carbon offset underwriters is probably reasonably limited as of today. So where do you poach people from? Because you obviously don't want to have a learning journey straight from uni, are these like surety underwriters, it's cyber, not just from the market, because the risk is very, where do you jump off from? Because also not everything is new, right? We have some reference points. And maybe again, if it's, if it's a top secret, please do tell, please do tell.
Chris: I mean, nothing, nothing in insurance, like from an, from an underwriting standpoint last, last long, if it's unique, cause exactly that it's been around for hundreds of years. And what you're doing is drawing on parallels from other products. And that's effectively what we've done when we've gone down to absolute, you know, root, root branch and build at the start of the product is go, okay, let's look at this like a title insurance product, or like a warranty product, or like a cap bond, or like a construction bond, or like, and we've basically amalgamated these views on each of those parallels from other different products in the market to build this first product. And yeah, so therefore we've drawn experiences from each of those product areas, as well as expertise in the team to try and find a route through to, to understanding how do you, how do you put this product into market.
Nick: Awesome. I would love to ask, but then you might have to answer how helpful re-insurance companies were in this whole endeavour. We don't have to go there.
Chris: That's a good question. That's a good question. Yeah. No, you should ask. That's a good question.
Max: Go ahead, Chris.
Chris: Yeah. I mean, I mean, look, I'm actually coming to the close closing cycle of getting our re-insurance treaties in place. So look, it's a new product. So, so it's, it's an education journey for everyone in the insurance industry that I speak to about how do you, how do you perceive the risk? What's the risk look like? And those that win will one be working with us to understand bring their own expertise. And, and as I've said for 20 years, start with the yes, rather than the no, start with the, how can we find a way to write this business? How can we find a way to price this business rather than finding ways to go? We've seen this before. We don't like this and don't like that. So that, you know, again, my whole experience is simply was all around how to use data and how do you try and find a way to price the risk, whether you're an offshore oil rig worker, you're a scaffolder working at, you know, you've got to try and find a way of, okay, what's the information, what's the proxy information that gives you a leading edge to say that you can price this risk profitably. So, so the reinsurers, some reinsurers have been very supportive. Some haven't.
Tom: Is there a cultural, also a cultural correlation?
Chris: What do you mean by that Tom?
Tom: That for instance, I mean, I live in Zurich, the Swiss are much more reluctant in comparison to let's say Berkshire Hathaway or something like that.
Max: Well, I would, let me, I'll try, I'll answer that, but Chris, you should chime in. But I think as we have a lot of good relationships with reinsurers, I think it depends on do they have sort of a more forward look on new product innovation and are they willing to sort of, you know, underwrite to a smaller amount into these kinds of new lines that, you know, could be a very big line over, over time. So I think it, so I think you're right, Tom, culturally, it depends like the Swiss Re's of the world, you know, they actually do have a lot of, you know, forward thinking groups that really underwriting new types of risks like this. So it does really depend on the reinsurer and what their approach is to, to writing, you know, insurer tax, MGAs and these sorts of new product innovations.
Nick: And we've seen I think reinsurers taking different stances of exactly how to underwrite kind of more, let's say traditional insurer tax, which arguably had less product innovation in it than what you're doing. At least if I'm kind of taking my kind of looking back, but they've certainly done some more or less successful, supportive underwriting on the reinsurance treaties. I guess one question on that is why an insurance company and I quote, not just an MGA, as some insurance companies are turning out of style a little bit. And certainly if you see private and public markets on, on others, there seems to be much higher value on the distribution side. MGA is always a little bit, you know, where do you place them then on the risk-carrying side? And I was just curious why you said, let's, let's get the red tape. So let's exhaust that.
Chris: Exactly. And you've got to remember, we have obviously already talked about, but having, having built a very successful agency, great margins, then having built an MGA by virtue of wanting to try and control product, but ultimately try and control more of the margin. I understand now having led some of the direction of travel here in the UK around, around MGA and move towards MGAs, finding niches, bringing expertise in, increasing margins. I think the challenge in this market, as we've just talked about with some of the reinsurances; this is a new product in a new market. And therefore the ability to create product and respond to the market in its infancy is challenging as an agency, certainly, but certainly I would add also as an MGA. So hence why we took the, the leap forward to become a full-stack insurance carrier. We see a couple of things.
One is that control of product. Two, I just like swimming across against the current. So it'll come back in vogue in the next three or four years.
But no joking, joking aside, I think it's that control of product. And look, ultimately what, what I'm building here is a, the syndicate that we've built and had approved by Lloyd's is really a support and manufacturing place to support my agency. Agency is where a distribution wins insurance. We all know on this call, you know, it's about how do you get access to customers? How do you deliver a distribution? But you can't get distribution unless you've got product. And therefore we had to build product and therefore had to go down the route, I believe, of building a full-stack carrier to give me ability to create the product now, but also innovate and iterate around that product as this market scales.
Nick: Understood. Max, as we're on the topic of carriers and you've mentioned Aquiline has been also historically very close with the insurance C-suite. What is your advice to a CEO of an insurance company who are maybe aware of the market? How should they view this? What should they do? What should they not do? Any advice from your end?
Max: Right. And you mean by the large insurance carriers and how they should approach the market? Yeah.
I think it's one that, well, first of all, a lot of insurance carriers are, you know, for example, Chubb has publicly stated they've created a sort of, you know, climate group to underwrite risks that are, you know, focused on, you know, businesses that are, you know, doing things like, you know, solar plants or, you know, things around wind or solar or other renewable energies. And so insurance companies are already sort of approaching this market and, you know, underwriting, you know, property risks that are, you know, fairly kind of a new category, but something they've always done before and taking an engineering approach to that. So that's already being done, I think, by the insurance carriers. But I think they should look at the voluntary carbon credit market and look at companies like Oka; you know, just really watch and see whether this becomes a big and legitimate market. And if it does, then I think you will see other carriers coming into the market to fulfil all the demand that will be there. So I would say that the carriers already understand that this is an important market because, again, they already have these sort of emissions goals already set. They're already doing the accounting. They're already very aware at the board level of the importance of this. But I would just advise them to, you know, watch the evolution of this market and for companies like Oka, because, you know, we could be creating a very big category just like, cyber insurance is a big category or DNO insurance, for example, was a big category and relatively new. So I think this could, you know, this could be another really important category of insurance to enter.
Nick: And maybe segue that towards, over to you, Chris, is to say, is there a way for, you know, are you competing? So let's say I knew an insurance CEO who agrees with the tailwinds, agrees, but also agrees, I have no idea how to underwrite. There's just no way for me to sensibly underwrite this thing. Is there a way for you to collaborate or do you, by virtue of being an insurance company, need to compete?
Chris: I mean, I think insurance is all about collaboration, to be honest, not to just make a sweeping statement, but to sort of back that up. As I think about some of the purchases that are going on in this market, in terms of the size of the number of credits that are being purchased, the line limits that are going to be required, the risk and exposure profiles, I see our syndicate working alongside and working with, and perhaps they're obviously syndicating some of the risks, but maybe even collaborating with insurers to be putting programmes in place to meet maybe some of the, you know, seriously large purchases that are going to need to be done out there. So there is definitely a way I think we could collaborate on that way. You know, the reason we went with Lloyd's as a vehicle is to give us a global licence. So there's also an opportunity from a distribution standpoint, like we're not going to be building distribution in all markets. Our focus is very much the US market for now and for the near term as well. So there could be opportunities there. But to Max's point, I actually want more of the carriers to come into the space to grow this market, to see also the opportunity that we're seeing here, because I think that increased competition will help also grow a much more prosperous market longer term. One of the big catalysts for Simply's growth was the likes of a direct line of acts are going, yeah, actually, this online is going to work, we're going to come in, put loads of dollars behind it to grow the market. That was great for us. I see the same here for Oka, a welcome and we need more carriers to come into the space.
Nick: And I would say from at least, you know, Chris, you know, there's my father, they did a classic car MGA. And the best thing that ever happened to them was the big insurers also promoting the product, because then they did the educational part, they just had to be better, which is not super hard, if that's the only thing you do. Right. And so that is, I would agree with the educational piece. And, you if an Allianz and an AXA and a Chubb are starting writing these lines of business, they're very likely write them more restrictively than you would, would imagine. And so that could actually be an interesting opportunity.
Gentlemen, just kind of conscious of time. I would like to get two things out. One, Max, your view just on the InsurTech trajectory more general, because it's kind of taking a beating from where I'm standing. But then also to give you the opportunity, whether we haven't covered a specific topic that can kind of lead that we don't need to finalise, but that can kind of leave us food for thought. But maybe on the first one, Max, so what's happening with InsurTech? Is it done with InsurTech? No, but you know, what's challenging? What's your outlook? What things should we look out for now that this year is coming to an end?
Max: Right. Well, I think the overall venture markets have sort of cooled off pretty significantly since 2021. And that includes both across the market. And of course, InsurTech is one market within the broader FinTech venture markets that have cooled off. I think what we saw in the first wave of InsurTech was a lot of sort of focus on distribution, disintermediation, maybe consumer experience, policyholder experience. And I think that the new InsurTechs are emerging are more sort of friendlier to the existing sort of supply chain of insurance and the ecosystem. And, you know, I've been in technology for a very long time throughout my career. And the great thing about technology is it's always, there's always something new on the horizon, right? Like who knew, you know, a year ago that generative AI would be this; you know, this, this new sort of transformational technology. And so I think the application of technology into insurance markets will always create opportunities for InsurTechs because there's always opportunity to, you know, streamline operations, improve distribution, use data and analytics for better, you know, underwriting for better, you know, claims handling, et cetera. And so I don't think that innovation will stop. And just like everything, it's not going to be, you know, up and to the right on a straight line. And so there'll be sort of bumps in the road, but I think, you know, I was talking to another CEO about this. So when times are tough for insurance carriers, they're looking to cut costs and insurance, InsurTechs who focus on productivity and efficiency can help in that way too. Other times, insurance companies are forward-looking for new product innovation and for, you know, digitisation, et cetera, InsurTechs are there to help as well. So I don't think there'll ever be a lack of need for technology and for InsurTechs to really help aid in the transformation of the business and to improve insurance products, insurance processes, and the overall market. So I think I'm a long-term secular bow, of course, in InsurTech, but we've learned a lot from the last sort of few years. And I think that the new wave of InsurTechs will, you know, sort of adjust and reoriented. And again, it'll be aided by these new technologies, like artificial intelligence. So hang in there, everyone in InsurTech, it'll get better. And, you know, there's obviously look at Oka, it was born out of, you know, just a couple of years ago. And I think a lot of good companies will be created out of this market environment and there'll be more capital efficient and there'll be more, you know, less competition in a way for these companies to succeed. So I think that's the ball case for InsurTech right now.
Nick: Max, thank you so much. I think we have one minute, Chris, any topic you just want to throw over the fence, any question that you think people should ask themselves when thinking about this topic that we didn't have a chance to touch upon?
Chris: I mean, I guess my parting thought would be around this sort of, I see ourselves as a catalytic creator of opportunity here, because I, you know, if we just take a step back and think about the carbon market, it's going to grow and therefore the opportunities to create products in this new market are going to be significant. I love what you said there, Max. I think as we think about the application of technology within our own business, you know, we've built a policy admin system with two non-technical people that can start trading tomorrow, you know, and I think the use of technology in the carbon market, you know, has so much room in terms of its application from stopping the PDFs being issued from auditors to the registries all the way through to generative AI and how you can use that to map risk. So I guess my, yeah, my call to arms always for the insurance listener is if you want to get involved, like get involved, we need to start creating businesses in here because innovation in the climate is going to be the biggest opportunity I think we see in our lifetime.
Nick: Gentlemen, thank you so much. It was a real pleasure. Continue with the great work and see you on the circuit.
Max: Thanks for having us. Really appreciate it. Bye-Bye