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Managing the Risks of Energy Efficiency Insurances in a Portfolio Context : An Actuarial Diversification Approach

Title data

Baltuttis, Dennik ; Töppel, Jannick ; Tränkler, Timm ; Wiethe, Christian:
Managing the Risks of Energy Efficiency Insurances in a Portfolio Context : An Actuarial Diversification Approach.
In: International Review of Financial Analysis. Vol. 68 (2020) . - No. 101313.
ISSN 1057-5219

Project information

Project title:
Project's official title
Project's id
Projektgruppe WI Nachhaltiges Energiemanagement & Mobilität
No information

Abstract in another language

To achieve ambitious international climate goals, an increase of energy efficiency investments is necessary and,
thus, a growing market potential arises. Concomitantly, the relevance of managing the risk of financing and
insuring energy efficiency measures increases continuously. Energy Efficiency Insurances encourage investors by
guaranteeing a predefined energy efficiency performance. However, literature on quantitative analysis of pricing
and diversification effects of such novel insurance solutions is scarce. This paper provides a first approach for the
analysis of diversification potential on three levels: collective risk diversification, cross product line diversification,
and financial hedging. Based on an extensive real-world data set for German residential buildings, the
analysis reveals that underwriting different Energy Efficiency Insurance types and constructing Markowitz
Minimum Variance Portfolios halves overall risk in terms of standard deviation. We evince that Energy Efficiency
Insurances can diversify property insurance portfolios and reduce regulatory capital for insurers under Solvency
II constraints. Moreover, we show that Energy Efficiency Insurances potentially supersede financial market instruments
such as weather derivatives in diversifying property insurance portfolios. In summary, these three
levels of diversification effects constitute an additional benefit for the introduction of Energy Efficiency
Insurances and may positively impact their market development.

Further data

Item Type: Article in a journal
Refereed: Yes
Keywords: Energy Efficiency Investment; Energy Efficiency Insurance; Energy Portfolio Risk Management; Energy Portfolio Optimization; Risk Diversification
Institutions of the University: Faculties > Faculty of Law, Business and Economics > Department of Business Administration
Research Institutions
Research Institutions > Affiliated Institutes
Research Institutions > Affiliated Institutes > Fraunhofer Project Group Business and Information Systems Engineering
Research Institutions > Affiliated Institutes > FIM Research Center Finance & Information Management
Faculties > Faculty of Law, Business and Economics
Result of work at the UBT: No
DDC Subjects: 000 Computer Science, information, general works > 004 Computer science
300 Social sciences > 330 Economics
Date Deposited: 17 Apr 2020 06:20
Last Modified: 15 Sep 2022 11:56