Flight into the unknown

When Swiss Re Corporate Solutions first announced it was going to be the sole insurer of an aeroplane capable of flying around the world on solar power alone, it shocked its insurance peers. No other insurer would take on the risks of a plane that flies without a single drop of fuel and, according to its inventors, can circumnavigate the earth.

That plane is Solar Impulse 2. 

Following 12 years of calculations, construction and testing, Swiss-based aviation pioneers Bertrand Piccard and André Borschberg unveiled the craft in Payerne, Switerland, in April. It is an upgrade of the prototype, Solar Impulse 1, which proved in 2010 that it could fly day and night on solar energy and, by storing sunlight in its batteries, that craft achieved the first solar-powered overnight flight in history, lasting 26 hours, 10 minutes and 19 seconds.

To ensure that Solar Impulse 2 could fly longer and further than its predecessor, the team built a wingspan 72m across and layered it with 17,000 solar cells (covering 269.5m2). These cells supply four electric motors with renewable energy and recharge the plane’s custom-made lithium batteries during the day so that it can fly at night. 

Size is everything for such an aircraft, and the smaller and lighter the components, the better. Engineers carefully calculated the weight of each material used to ensure that the plane was light enough to fl y on renewable energy. Every gram that took the craft above a certain weight had to be deducted elsewhere to ensure it could carry the 633kg weight of the batteries and house a cockpit comfortable enough for a pilot to live in for a week. Overall, the plane is proportionately 10 times lighter than the best glider and although the wingspan is 4m longer than the Boeing 747, Solar Impulse 2 weighs only 2.300kg.

Written off

The ultralight plane is a breakthrough aeronautically, pushing the boundaries of what is possible. In insurance terms, it is a unique risk – the only risk of its kind in the aviation sector –and for this reason, insurers would generally deny cover. As a matter of fact, many did in Solar Impulse’s case, most crucially because no historical data was available on the risks linked to and experienced by such an aircraft. It posed challenges in quantifying and pricing the risk and many in the market wrote it off as uninsurable.

Why, then, would Swiss Re Corporate Solutions take the plane’s risks on to its balance sheet? “Because Solar Impulse is a symbol for innovation,” says its chief executive officer, Agostino Galvagni, “and innovation is one of the major value propositions of Swiss Re Corporate Solutions”.

He adds: “The solar-powered aeroplane represents the potential for further development in the renewable energy industry and is an example of the potential we have as an insurer in the renewable energy field.

“Insurance plays an important role in supporting pioneering projects in this area. We believe that advancing renewable energy and clean technologies, and establishing them as integral components of the global energy mix, are crucial in ensuring a sustainable future. The intent of our partnership with Solar Impulse is to endorse and promote this message.”

Swiss Re Corporate Solutions’ decision to provide insurance was not as simple as appreciating the aircraft’s innovative credentials, however. The shortage of historical data remained an underwriting hurdle for the project and initially, like many others, the company rejected Solar Impulse’s application. 

Prototypes

This initial decision did not dissuade the Solar Impulse team. Although not the typical historical loss data needed to quantify risk, in a second meeting with the firm’s underwriter, the team came equipped with its own statistics, and lots of them: data generated from its 12-year research and tests of its prototypes, including information from Solar Impulse 1 and earlier models, all formulated in a coherent presentation. 

“I told the Solar Impulse team to bring me some profound information. They did just that and delivered it in an impressive presentation,” recalls Michel Rohr, the insurer’s lead underwriter and client executive for aviation. “It was data that we could, in the end, assess, evaluate and underwrite. 

“After reviewing this information, we first offered to take 20% to 30% of the risk if other insurers came on board to insure the rest. At the time, we considered this to be a high share in insurance for a product of this nature.

“But after a few weeks, we learnt that no other insurer was prepared to take on the rest of the risk. The question became, could we become the sole insurer?”

Yes, Galvagni answered, because after reviewing every speck of information provided, the Swiss Re team regarded Solar Impulse’s extensive research as the best proxy available to underwrite this one-off risk. “After further discussions with Solar Impulse and based on the [pilot’s] high level of knowledge and competence, we became comfortable enough to provide insurance, despite missing industry data.” 

That decision marks the point when Swiss Re Corporate Solutions agreed to insure the unknown – something that few insurers have proven confidence to do. The next step was to price this unique risk – but how does any insurer, who takes on the unknown in such a way, quantify the risk in the absence of historical loss data?

Rohr explains that this could be achieved by analysing technical and ‘soft’ factors unique to the project. “The premium was then calculated by pricing the risk over similar threats associated with ‘normal’ planes.

“Next, we loaded the premium with an uncertainty factor. We would probably have charged 3% premium for the risk if it had been a normal plane but in this instance, we had to add a loading [percentage] because it was not a normal aircraft.”

This led the insurer to agree an insurance package that covers the aircraft for CHF30m (€24.6m), of which hull insurance for damage is CHF12m (€9.8m).

Solar Impulse 2 is now clear for take-off and will begin its around-the-world trip in March 2015, starting and ending in the Middle East. It is a journey that would not have been possible without insurance. 

Equally fundamental is the message that Swiss Re Corporate Solutions and Solar Impulse’s story represents. As initiator and pilot Piccard puts it: “Our aeroplane is not designed to carry passengers, but to carry a message.” That message is to innovate.

As technology advances and risk evolves, insurers are increasingly being required to consider the unknown. This project demonstrates that with a pioneering spirit and a little risk-taking, businesses and insurers can achieve a lot more. Swiss Re Corporate Solutions’ use of alternative underwriting data proves that even in a risk-adverse industry, there is room for insurers to push the boundaries of what is possible, if they dare to think outside the box. Kin Ly