New insurance exposures stemming from renewable energy initiatives

New insurance exposures stemming from renewable energy initiatives | Insurance Business America

New insurance exposures stemming from renewable energy initiatives

This article was produced in partnership with Amwins.

Bethan Moorcraft of Insurance Business sat down with Rob Battenfield, SVP, energy property practice leader at Amwins Wholesale Insurance, Daniel Drennen, VP and environmental practice leader at Amwins, and Loren Henry, VP and specialty environmental broker at Amwins to discuss new insurance exposures stemming from renewable energy initiatives.

The race to net zero is well and truly underway, providing a major tailwind for the renewable energy sector in the United States. While the great energy transition is required for the future health and sustainability of the planet, such systemic changes do not come without their risks.

“There’s this excitement and eagerness to convert to net zero carbon – but what will that cost society, and how will the insurance industry respond?” said Rob Battenfield (pictured), SVP and energy practice property leader at Amwins.

Solar and wind: A steep learning curve 

Insurers continue to learn and test new methods of modeling risks in order to determine the best way to insure wind and solar, according to Battenfield. He explained: “People are putting wind and solar farms in low cost areas where the resources of wind or sunshine are abundant. However, these areas are typically unpopulated, therefore the exposures to severe convective storm may be underestimated. That has been a continued surprise to insurers, who are trying to provide a supply of capacity to meet the needs of the insured.”

In the second quarter of 2022, there were multiple catastrophic hail events that all caused losses in excess of $50 million in the solar industry. These near-record losses all occurred within a span of 60 days, leaving the insurance market reeling and cautious of further risk accumulation.

Many property and casualty (P&C) insurers are “behind” on their renewable energy underwriting and claims settling expertise, Battenfield added. This is because traditionally large insurers delegated their underwriting authority to a few select managing general agents (MGAs) when the industry was still nascent and the insurance solutions were cheap and hard to compete with. But after some severe losses, the MGAs started to restrict capacity, the market hardened, and traditional insurers started to bring their underwriting authority back in-house.

“Claims precedents and risk modeling are playing catchup because these are still relatively new technologies,” said Battenfield. “Prototypical technology used to be a bad word in insurance, but it is the norm in renewables. There’s this constant pressure to innovate and create lower price, more efficient renewable technologies – and that comes with a research and development (R&D) cost, which can carry over to insured losses.”

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In general, most companies are very willing and eager to transition to cleaner energy sources, but the question remains: What are the unforeseen exposures? According to Daniel Drennen, VP and environmental practice leader at Amwins, the race to net zero is causing some “short-sightedness” around the long-term environmental implications of their green energy investments.

“Solar panels only last so long, and there aren’t yet very many ways to recycle them,” he said. “It costs an estimated $20–$30 to recycle one solar panel, so a lot of them are going to end up in landfills. When you add up the accumulative amount of waste entering landfills over time, there are going to be issues with water leaching out and contaminating water supplies.

“In a similar vein, it’s not cheap to take apart a wind turbine. Xcel Energy estimated a cost of a half million dollars to decommission one wind turbine. Most landfills aren’t prepared to take the turbine blades, so you’ve got to cut them up into smaller pieces, which creates a whole other cloud of pollution from the chemicals in the fiberglass, carbon fiber, and the other materials inside those turbines.”

Electric vehicles and energy infrastructure

Electric vehicles (EVs) are being promoted worldwide as a key technology to reduce oil-related emissions and fight climate change. According to the US Department of Energy, EV sales grew by 85% from 2020 to 2021, while sales of plug-in hybrid electric vehicles (PHEVs) more than doubled, with an increase of 138% over the previous year. While most EVs and PHEVs sold today tend to produce significantly fewer global warming emissions than traditional gasoline-fueled vehicles, they do create some new insurance exposures.

“There’s quite a bit of environmental damage that occurs in making EV batteries,” said Drennen. “The batteries typically last 8-10 years, and they contain heavy metals, such as cobalt and nickel, which don’t break down in nature. They’re very expensive to recycle, and most countries don’t yet have a policy for how to manage the waste from EV batteries. As we start cranking up EV production, we need to consider the ultimate environmental impact beyond the current focus on reducing carbon emissions.”

Read more: Navigating the new and complex realm of renewable energy insurance

The success and efficiency of EVs is heavily dependent on energy infrastructure and the capacity of electrical grids. In California – a very pro-EV state – officials have warned that extreme heat and other climate change impacts will threaten the reliability of the state’s electrical grid over the next five years, potentially causing electricity blackouts due to power supply shortages. 

“In California, there’s been a big push to get more EVs on the road and get rid of traditional combustion engines, but there are some big questions around whether the electrical grid has the capacity to support a steady increase in EVs,” said San Diego-based Loren Henry, VP and energy specialty broker at Amwins. “This extends beyond EVs. There is significant financial risk associated with the blackouts and brownouts we’ve seen in California. For example, if a business doesn’t have power and they can’t operate, that could trigger a business interruption loss.” 

Occupational hazards and P&C risks

As states have accelerated their development of renewable energy infrastructure, insurers have seen new claims in the workers’ compensation and liability arenas. Henry explained: “In the solar industry, for example, there’s a lot of accidents and injuries related to lifting and falling from heights – and we’re seeing workers’ compensation claims as a result of that.

“I think there are going to be similar trends in other industries, like wind. Wind turbines are very high off the ground, so employers need to think about how they’re lifting people safely. There are many different exposures that people don’t necessarily grasp or quantify at the beginning of these processes.”

Beyond occupational hazards, there are property risks associated with the installation and removal of renewable energy sources. Battenfield gave the example of a commercial property owner installing solar panels on the roof. He commented: “Is the roof built to hold that big apparatus? Is there damage being done to the roof during installation? Has this impacted your exposure to leaking, or the life expectancy of your roof? This is not without costs, or maybe some additional risks.”

A guiding hand through a tricky market

“The renewable energy industry presents us with new and evolving risk,” said Battenfield, “and the reality is, you’ve got to find an educated broker to sell your risk and syndicate it into the market. It’s all about industry knowledge and being able to articulate that to insurers to help them expand their appetite in an evolving risk landscape. There’s no substitute for specialization in this business.”