Posted in News on 06 Nov 2019

The development and construction of renewable energy assets (Solar PV and Wind predominantly) continues to lead a strong interest within the insurance market. With certain large insurers pulling out of providing coverage and issuing policies for the international coal sector [1], it is likely that they will instead choose to boost their ‘green credentials’ by instead supporting the renewables industry in the coming years. 

In this article, we explore the changing criteria for underwriters operating in the specialist renewable energy class of insurance, to give guidance to clients on how they should best prepare either for renewal, or an initial policy purchase.

Insurers specialising in renewable energy have followed suit with the market adjustments to premium rating and policy deductibles that have occurred across many sectors in recent months. However, this adjustment is not without some unique factors, which have played a part in renewable energy insurers reacting to the numerous sector specific loss trends they have incurred on their books.

In global construction projects, common damage losses continue to arise from issues with contractor workmanship/ materials, contractor error and negligence, transit, and natural catastrophe events. Albeit these have hit insurers harder in 2019 on a wider global scale as insurers’ risk portfolios have grown and the renewables footprint expands.

We are now seeing greater scrutiny of risk allocation in project contracts, in addition to a requirement for more background information about the experience and credentials of the project contractors. These are now high on the agenda as underwriting criteria.

As is to be expected, project site location continues to be the primary underwriting consideration.  Analysis of zonal risk of windstorm, flood and earthquake and evidence of further mitigation measures for earth movement, tornado and most importantly, lightning (due to its high frequency of occurrence), all form part of underwriting viability criteria.

The historical data for some types of weather is not at the same level as the core natural catastrophe perils, particularly in emerging markets, but it is mandatory for modelling teams at most insurers to give sign off against internal restrictions for an underwriter to proceed. This is both in response to the global increase of events possibly brought on by climate change and to counter act a greater frequency of claims of this nature during construction but mainly in operations due to time of risk exposure.

Typically operational asset common damage losses arise from machinery breakdown, electrical failure, operator / contractor error and negligence during operations & maintenance (O&M) natural catastrophe, theft and serial losses. In depth reviews are now taken on off-site substations for provision of ‘Contingent Delay in Start Up’ and ‘Contingent Business Interruption’ covers, due to interconnection typically being under the care of the network operator or offtaker as opposed to the project/asset owner themselves.

The onshore wind sector continues to see new turbine models adapted from previous lower MW capacity units and launched to sell to ever bigger projects. Considerations for this are twofold:

  • Lending parties and their advisors need to increasingly acknowledge that wind turbines of 3MW+ carry an increased minimum deductible level quoted by insurers. This should be anticipated by brokers and relayed to clients early in development so that any lenders insurance requirements can be agreed upon suitably for the projects selected, or shortlisted technology.
  • In the turbine selection process, project developers should ask the shortlisted Original Equipment Manufacturers ‘OEMs’ to provide a summary of projects where the turbine model in question has been installed and or a purchase order made to provide insurers with a timeline for a new model achieving its ‘Type Certification’. Insurers require this as qualifying view on operating hours to be able to offer the wider defects insurance coverages.

Historically the renewable energy insurance market has been driven by specialist renewables insurers relying on their large lead line capacity and with the ability to write most projects at 100%. However due to claims ratios incurred, the growing diversity within projects, and the common damage losses (identified earlier in the article) occurring more frequently, we are seeing large capacity insurers increasingly writing reduced majority shares. This positively raises opportunity for greater insurer competition for policyholders and enables the specialist mid-tier capacity insurers to lead projects and asset programmes where previously they were locked out of participation.

Now, and in the future, as the underwriting books and capacity of the mid-tier insurers increases - combined with large global insurers embarking on their plans to write ‘green business’ - clients will likely find that they have a wider choice of lead carrier and quoted options – a welcome situation against the backdrop of the current market adjustment where it always pays to seek out alternatives.


FOR MORE INFORMATION, PLEASE CONTACT

Duncan Gordon | Account Executive

T +44 (0)20 75 60 31 15 | E. Duncan_Gordon@alescorms.com


 
About Alesco
   
 
Alesco is a specialist insurance and risk management business located in the heart of the City of London. Founded in 2008 by a team of experienced professionals, we provide a wide range of risk-management services and insurance solutions which are fundamental for protecting organisations. We work closely with underwriters in the London markets, in key global insurance centres, and with local broking partners in 150 countries.

   

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