Australian insurance brokers placing cover for battery energy storage systems (BESS) are operating in a market where the definitions governing whether a claim is paid – what constitutes a defect, what triggers a payout, and how performance is measured – are inconsistent across project contracts, insurer wordings, and the standards bodies that underpin both. That fragmentation, not simply the timing of broker engagement, is the primary structural risk now confronting the sector. The issue emerged from a panel on warranties and insurance at the Battery Asset Management Summit Australia 2026, and it arrives as Australia’s BESS buildout has reached a scale at which the consequences are no longer theoretical.
Australia is now the world’s third-largest utility-scale BESS market, with 4.3GW of large-scale battery storage systems reaching financial close and 2GW/5.1GWh commissioned in 2025 – a 233% year-on-year increase, according to the Clean Energy Council (CEC). Battery storage accounts for 46% of Australia’s record 64GW energy development investment pipeline, according to AEMO data released in January 2026. Gallagher Australia noted in its April 2026 BESS risk report that assets of significant scale and value are being deployed much faster than traditional risk and insurance frameworks were designed for, creating new challenges for owners, operators, and insurers.
The most actionable risk raised at the summit was the fragmentation of defect definitions across the multiple contracts underpinning a typical BESS project. Arzu Perwin, a commercial manager with experience across battery storage project development and operations, told the panel that split contracting structures – now the dominant procurement model on Australian BESS projects – compound this risk materially. “A lot of the regimes that we do see now are split contracting. Every contract might have a slightly different definition of what constitutes a defect and how that defect can be identified,” Perwin said, as reported by Energy Storage News.
Norton Rose Fulbright’s June 2025 update on split contracting in Australia’s renewable energy sector confirmed that the trend has solidified, and that one of the critical challenges is ensuring seamless coordination between multiple contractors and suppliers – with the developer taking on the risk of failures in coordination and interface when no separate deed is in place. For a broker, the practical consequence is that a client whose supply contract, engineering, procurement, and construction (EPC) agreement, and insurance policy each define “defect” differently may find that a real failure falls through all three simultaneously.
That fragmentation extends into the insurance market's own governing language. Gemma Claase, head of energy transition for Howden Insurance Brokers’ Pacific business, pointed to the London Engineering Group’s (LEG) three separate defect clauses – LEG 1, LEG 2, and LEG 3 – as a persistent source of claims contention. The London Engineering Group told an industry conference in June 2026 that it plans to release updated LEG 3 and other clauses addressing construction defects by late summer, with the aim of bringing clarity following legal rulings that left buyers, brokers, and carriers uncertain about the scope of cover under construction all-risk policies. In July 2026, the London Engineering Group became affiliated with the International Underwriting Association (IUA), with its model clauses to be incorporated into IUA resources going forward. “This is really something developers should check with their broker,” Claase said, recommending a pre-loss claims workshop with a lead underwriter to establish how specific wording would be interpreted before any dispute arises.
Engineering manager Anya Krol – with close to a decade of BESS experience across the full project lifecycle – described a divergence between what a performance guarantee test measures and what operators observe daily. “The performance guarantee test is a structured, well-defined test under certain conditions and follows certain steps. Whereas in the real-life day-to-day operation, it’s not uncommon for the owner-operator to see different values as the actual usable energy,” Krol said, as reported by Energy Storage News. She attributed this to intermittent internal faults, derating, cell balancing, and configurations where a project’s point of connection and its contracted point of guarantee diverge – leaving a supplier’s metrics reading 100% availability while the owner experiences reduced output with limited contractual recourse.
Independent manufacturing data reinforces the concern. More than one in eight energy storage systems inspected by Intertek CEA in 2025 had critical safety failures, with 75% of all defects at the system level – primarily in balance-of-system components and unit enclosures – and battery management system faults present in 4.7% of systems inspected, per a report published in May 2026. Separately, kWh Analytics’ 2026 Solar Risk Assessment, published in May 2026, found that 75% of BESS sites showed early HVAC-related thermal risk signals – a category of operational underperformance that may not cause physical damage but does affect output. These are precisely the failure modes that may not satisfy a narrowly drafted defect definition, leaving owners uncompensated and brokers exposed to client disputes.
Claase said the market has begun producing products that cover underperformance without requiring physical damage to trigger a payout – a departure from traditional construction and property policies. A newer category of technology insurance for BESS, noted in specialist commentary published in March 2026, covers performance guarantees, manufacturer insolvency protection, and capacity degradation beyond normal parameters. Brokers should be actively testing whether existing placements include this coverage or whether it requires a separate facility.
Claase described reinsurance models pricing much of the BESS market as “grossly outdated,” built on historical data inadequate for assets with 20-to-30-year operating horizons. Namrata Soni, lead underwriter for energy and construction at Canopius Group, reinforced the concern on weather risk modelling. WTW’s Renewable Energy Market Review 2026 found the market is in a sustained softening phase, with well-engineered, data-rich risks seeing property damage premium reductions of 20% to 30%. Both panellists said the current market conditions give brokers leverage to push underwriters toward more predictive modelling approaches at placement.
Krol raised one further risk: the possibility that a critical BESS software vendor exits the market before a project’s 20-year operating life concludes. With power plant controllers and battery management systems now central to operation, and many suppliers only two to three years into the market, vendor continuity is unresolved. According to FinTech Australia’s report citing Australian Securities and Investments Commission (ASIC) data, Australia’s technology sector saw a 33% increase in insolvencies from February 2023 to February 2024, followed by a further 23% increase from February 2024 to February 2025.
Software escrow arrangements offer a partial answer, Krol said, but raise unresolved questions around verifying completeness of holdings, managing interdependencies, and handling ongoing updates. “That should not be a problem for each individual owner and operator. That’s the wider industry issue,” Krol said. For brokers, the operational continuity assumptions embedded in policies placed today will be tested over two decades – in a vendor market no one has fully mapped.
