As the need to shift to more sustainable forms of energy becomes more pronounced due to climate change, insurance will be crucial in helping Asian nations in achieving the transition to renewable energy, according to a report by Willis Towers Watson.
In its inaugural ‘Renewable Energy Market Review for 2020’ report, the global consultancy and brokerage identified several realities that the insurance industry needs to face in the new decade. These include:
- Geopolitical tensions – According to the report, conflicts and other international tensions are seemingly threatening the renewable business landscape. These include the US/Iran situation, the ever-present issue of North Korea, and conflicts between Turkey and Syria and between India and Pakistan.
- New risks due to climate change – Due to the overwhelming scientific evidence on climate change, renewables are projected to become the largest source of global energy supply by 2050. The report found that the rapid growth in the renewable energy industry brings new risks and issues, especially within sub-sectors such as floating offshore wind and hybrid renewable energy.
- A hardening insurance market – The long period of soft market conditions, characterised by an excess of re/insurance capital and an emphasis on meeting premium income targets, has finally come to an end. Now, the renewable energy insurance market is faced with deteriorating loss ratios and increasing costs, with truly hard market conditions having emerged over the past 12 months, Willis Towers Watson said.
- More cybersecurity threats – The report noted concern across the industry as to how to quantify and manage its exposure to cyber risk. At a recent renewables seminar hosted by Willis Towers Watson in Prague, over 84% of delegates expressed concerns that the industry did not know how to manage this risk effectively.
- Uninsurable weather risks – The renewable energy industry is quite susceptible to weather volatility, which means index-based solutions are becoming more popular to address power generation risks, such as low wind and low solar output, as well as power price volatility and power outages not linked to physical damage.
“Due to the global pressures to reduce emissions and fight climate change, Asian governments and corporations are beginning to embrace the social transition from coal power to renewable energy,” said George Nassaouati, Willis Towers Watson’s head of natural resources, Asia.
“While the insurance markets… have been promoting this shift, the transition to renewable energy can only be sustainable with a rapid increase in investment into the industry. Not only are insurers leading the movement, they are also developing solutions which are tailor-made specifically to tackle issues such as the lack or shortfall of sun or wind energy.”
He added that transferring these risks to the insurance markets will allow improved cashflow for businesses, leading to the shifting away of investments from coal towards renewable energy.