A structural tension is building in Australia’s power-generation insurance market: underlying risk fundamentals are worsening at precisely the moment that capacity and competition are driving rates down. A report from commercial property insurer FM quantifies seven decades of global power-generation loss data and – read alongside Australian regulatory and market intelligence – presents underwriters, brokers, and risk managers with a concrete case for examining how this class is currently priced, structured, and managed.
The Australian Energy Regulator’s State of the Energy Market 2025 sets the domestic context plainly. Australia’s coal plants are aging and increasingly costly to operate, requiring high levels of maintenance and refurbishment to keep running, and are prone to unplanned – sometimes prolonged – outages that make them increasingly unreliable. At the same time, electricity consumption in the national electricity market (NEM) is forecast to grow approximately 28% over the next decade, from 178 TWh in 2024-25 to around 229 TWh by 2034-35, according to AEMO’s 2025 Electricity Statement of Opportunities.
Data centres are a primary demand driver. Australian data centre consumption was estimated at 3.9 TWh in FY25 and is forecast to grow at an average annual rate of 25.1% to reach 12 TWh by FY30 under AEMO’s Step Change scenario. The Clean Energy Finance Corporation projects that Australian data centres could represent up to 11% of the nation’s total electricity consumption by 2035, up from about 1% in 2025. FM’s report notes these facilities impose concentrated, high-density electrical loads onto infrastructure not designed for them – stressing transformers, switchgear, and cooling systems while generating volatile load profiles that accelerate wear on generation assets.
FM’s report, Understanding Power Generation: Loss Trends and Predictive Analytics, draws on more than 70 years of client loss history. Between 2016 and 2025, FM recorded US$4.6 billion in gross total losses across its power generation portfolio – US$2.6 billion in property damage and US$2 billion in business interruption. Mechanical and electrical breakdowns accounted for more than 70% of all loss events and over 80% of total financial impact annually. From 2021 to 2025 alone, FM clients sustained 427 loss events totalling approximately US$3.7 billion. Gas turbines drove 52 events and US$540 million in losses; steam turbines recorded 31 events and US$333 million. Gas turbines represent the single largest source of property damage across the sector.
The finding with the sharpest portfolio implications is geographic concentration: more than 27% of losses originate from just 2% of client locations. FM applies a multinomial ordinal regression model across approximately 60,000 visited locations to identify the sites most predisposed to losses exceeding US$3 million. For underwriters managing accumulation across power-generation books, that ratio means a small number of facilities drive a disproportionate share of claims – and, critically, those locations are identifiable before a loss occurs, not after. “Power generation is a pillar of national and global security. Losses within this sector reverberate beyond individual facilities, affecting macroeconomic performance, energy availability, the resilience of critical infrastructure, and local communities,” said Stuart Keller, chief engineer at FM.
The most consequential finding for policy structuring concerns business interruption. FM identifies gas turbines and transformers as the primary BI drivers, with replacement timelines that now materially exceed indemnity periods common in Australian commercial policies. FM places large power transformer lead times at two to two-and-a-half years under normal market conditions, exceeding three years under stress. Independent data corroborates this: power transformer lead times remained elevated in Q2 2025 at approximately 2.5 years, while generator step-up units averaged 2.8 years. The IEA’s 2025 report on grid transmission found that lead times have almost doubled on average since 2021, with prices reaching 2.6 times their pre-pandemic levels in real terms in some cases. FM places gas turbine replacement horizons at three to seven years.
Standard BI indemnity periods of 12 to 24 months sit well short of those timelines for any critical generation asset. Specialist energy brokers have noted that early identification of single points of failure, spare equipment strategy, and protection scheme reliability consistently improves both placement outcomes and long-term operational flexibility, and that insurers are increasingly focused on contingency planning as a specific underwriting consideration. Industry commentary has also flagged that too many programs remain under-specified on indemnity periods, contingent business interruption, and the real time required to source replacement parts.
The market context amplifies the concern. The broader energy insurance market has seen softening accelerate, with insurers prioritising retention of well-managed risks and rewarding long-term client relationships. In the power sector specifically, new entrants have joined incumbent insurers, intensifying competition and contributing to sustained rate suppression.
In Australia, that dynamic is shaping underwriting discipline across the generation class. John Rae, Pacific renewable energy leader at Willis, summarised the Australian market’s direction: “Capacity remains available, but deployment and pricing are increasingly influenced by project location, technology type, and overall risk quality.” In Willis’s 2025 market review, Rae called on Australian energy sector stakeholders to “engage their insurance brokers and risk advisors early, invest in risk mitigation, and embrace data-driven risk transparency to navigate a more technical and disciplined insurance landscape.”
The divergence between softening rates and worsening loss fundamentals – aging assets, multi-year replacement timelines, concentrated BI exposure, and demand growth stressing existing infrastructure – is precisely the environment in which indemnity period adequacy and risk engineering investment tend to be underweighted until a major loss forces the correction.
FM ranks the primary causes of power-generation loss in order: inadequate protective or safety devices; insufficient operating procedures; gaps in contingency planning; mechanical and electrical design vulnerabilities; absence of automatic fire protection; and weather and natural hazard exposure. Facilities without automatic suppression experience the most severe fire outcomes, and the report states that many losses are avoidable when vulnerabilities are identified and addressed early. FM’s engineers conduct more than 1,900 on-site facility visits annually, and facilities that align closely with its engineering recommendations experience fewer and less severe losses. “Our experience conclusively demonstrates that proactive loss prevention leads to materially fewer and less severe losses. Not only do clients strengthen their operational resilience; they protect their long-term reliability and profitability,” Keller said.
The full report is available via FM’s website.
