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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) . - 101313.
ISSN 1057-5219
DOI: https://doi.org/10.1016/j.irfa.2019.01.007

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 > Branch Business and Information Systems Engineering of Fraunhofer FIT
Research Institutions > Affiliated Institutes > FIM Research Center for Information Management
Faculties
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: 12 Dec 2023 14:59
URI: https://eref.uni-bayreuth.de/id/eprint/54958