Market outlook
Throughout 2020, the renewable energy insurance market continued to harden with restrictive terms & conditions and increased premium rating being imposed across the board, driven by sustained claims activity in the sector. Essentially, the insurance industry is driven by a simple formula, premiums in need to be greater than claims paid out and the reality is the renewable energy sector has been underperforming for many years due to a sustained period of claims activity. Claims in the sector have occurred from a variety of factors and across all stages of the project life-cycle driven by:
● Contractor error during construction; ● Mechanical and electrical failures; ● Defective equipment / workmanship; ● Aging / out of warranty technology; and ● Natural Catastrophe events including flood, hail, lightning and windstorm losses. In this paper, we have partnered with leading renewable energy underwriter GCube Underwriting ( “ GCube ” ) to provide a deep dive into the key claims characteristics and what is driving underperformance in the sector. Our goal in providing this analysis is to raise awareness of the types of claims impacting the industry to all interested parties, including Developers, Owners, Operators and Financiers involved in the development of Australia’s renewable energy sector.
Figure 1: Renewable energy insurance market outlook 2021
Factor
Trend 2021 Outlook
• Limits are typically financier driven and for full Repair & Replacement so remain fairly constant • Insurers rate exposure on expected project loss scenario not full limit so changing limits will not materially impact premium • Deductible / excess levels assessed to ensure reflective of technological, asset age and location risk • Projects with high natural hazard exposures incurring higher deductibles to manage insurer’s updated catastrophe models • Coverage levels amended to reflect revised underwriting guidelines • Defects exclusion aligned to technological exposures: • Maximum LEG2 Defect Exclusions on project risks • Maximum LEG1 on prototypical / unproven technology • Natural Catastrophe sub-limits imposed • Increased exposure to “split terms & conditions” from insurers on program panel • Capacity fairly stable with combination of: • Existing insurers managing line size exposure across portfolio ensuring no oversupply of capacity • New insurers entering renewable energy market • Trend towards increased number of insurers to complete program placements • Continued global claims activity across Power & Renewable Energy sector impacting sector profitability • Renewable Energy losses in Australia continue to dominate global claims activity • Increase in premium rates throughout 2020 anticipated to continue into 2021 • Insurers seeking to differentiate clients / projects based asset age, warranty / O&M Agreements, NAT CAT exposures and claims history
Limit of Liability
Deductible / Excess
Policy Coverage
Insurer Capacity
Claims Activity
Premium Rating
1
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