Is the insurance market hardening for the renewables sector?

Experts outline the challenges of insuring assets such as wind farms

Is the insurance market hardening for the renewables sector?

Insurance News

By Ksenia Stepanova

New Zealand is one of the most advanced nations in the world when it comes to renewable energy, and yet the local renewables sector is facing a hardening insurance market with hefty premiums, a reluctance to cover new technology, and an increasingly cautious approach to potentially large losses.

Willis Towers Watson recently published its renewable energy market review for 2021, where it highlighted the “challenging” insurance market faced by the renewables sector across the globe. According to global head of natural resources Graham Knight, insurer risks have not been this high since the 9/11 terror attacks of 2001 – and with a slew of complicating factors and a “significant” claims loss track record, the renewables sector is feeling the pressure.

“The challenges and issues that are concerning the renewables markets across the globe are spelt out clearly,” Knight commented.

“The risks surrounding aged assets, the effective risk management of operations, maintenance and spares, the exposure to natural catastrophe risk, the experience (or lack of it) of the contractors involved in specific projects, lender obligations, the rapid escalation of technology, and finally, of course, COVID-19 and the consequent supply chain disruption issues.

“All of these challenges are currently making their own contribution to market conditions, which have not been experienced since the immediate aftermath of the 9/11 tragedy back in 2001.”

According to Willis Towers Watson NZ national construction manager Tony Seto, the issue of inexperienced contractors is particularly prevalent in New Zealand, though the reason for this is simply that demand is not high – over 80% of New Zealand’s power already comes from renewable energy sources.

He says that new, untried and untested technology can also cause some reluctance, as insurers have no historical loss data, which makes it difficult to accurately assess risk.

“A lot of the issues are around the advancement of technology, and use of technology that doesn’t have a proven track record,” Seto explained.

“That comes with a lot of trial and error, and what we’re finding is that insurers are there to effectively front the bill on a lot of these new projects.”

“Natural catastrophes, particularly earthquakes, are also a big risk in New Zealand, we well as the logistical issues that come with transporting wind farm components,” he continued.

“I’ve been involved with a few losses around blade failures during transit. Many of these farms are built in high places with difficult terrain, so when you’re transporting these big blades from the port to the site, that could be pretty difficult. Couple that with an inexperienced contractor, and it’s a challenge.”

Seto noted that damage to a single wind turbine blade could cost as much as $700k to $1 million, and, as a result, one sole loss could wipe out an insurer’s entire premium pool for a single project. However, he says he doesn’t see insurers pulling out of the market any time soon, though they will almost certainly place more and more restrictions on the kind of cover they’re willing to offer.

“We spent a lot of time with insurers trying to really showcase and demonstrate the experience level that’s been engaged, and insurers spend a lot of time looking at the kinds of contractors that are being used,” Seto said.

“It’s very hard to see insurers pulling out completely at this stage, though there are some who are drawing away from insuring assets in the renewables sector.”

“It is still down to premium pool at the end of the day, and there are key insurers out there who have been doing this for a long time, and have built up a large premium pool to withstand these losses,” he concluded.

“We’re seeing more changes in coverage, with insurers analysing trends and increasing policy deductibles around blade losses, for example. There are also tools that insurers can use to mitigate their losses, but there’s only so much they can increase and charge onto the client. It’s very much a balancing act.”

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