The pressures exerted by the COVID-19 pandemic on workforce availability and maintaining supply chains are proving challenging to the power sector, according to a report by Willis Towers Watson.
Furthermore, the increasing focus on Environmental Social Governance (ESG) is also having a significant impact on future power sector risk management strategies, the broking and consultancy giant said.
Willis Towers Watson’s Power Market Review outlined how the COVID-19 pandemic presents some unique risks to the power sector that must be managed effectively to maintain reliable supply. Key risks include reduced electrical demands, moratoriums on construction projects, the availability of personnel, and travel restrictions – which can impact access to operating assets for maintenance.
However, some clients have taken advantage of the decrease in electricity demand and lower pricing to proactively move scheduled maintenance operations forward, contrary to insurer expectations, the report said.
The report also highlighted the reduction of global capacity for the power business. This is due to some insurers having withdrawn from the sector entirely, as well as a reduction in the capacity that the remaining insurers are agreeing to deploy. In 2020, the total global capacity is approximately US$3 billion, with a realistic capacity figure of approximately US$1.5 billion.
With average global annual losses at approximately US$2.5 billion, the report concluded that the global premium for the power sector has been below the average annual loss amount for some time.
Meanwhile, in the second quarter of2020, most programmes saw rating increases of between 15% and 20%. This, according to Willis Towers Watson, has stayed relatively stable on a risk rating basis based on occupancy.
“As the power generation sector and its insurance partners adjust to conducting business during the COVID-19 pandemic, all parties must remain disciplined in assessing and managing risks,” said Graham Knight, head of global natural resources at Willis Towers Watson. “Risks that are magnified by the pandemic, including the availability of plant and vendor support personnel and any disruption to operation and maintenance tasks should be managed with the joint goal of ensuring plant reliability. At a time where plant resources might be limited, open and transparent communications with their insurance risk consultants should leveraged to the benefit of all.”