Emerging risks | Growth Opportunities | APAC Insurance
Emerging risks | Growth opportunities | APAC insurance
Browse insight:
Dealing with challenges
Whitepaper navigation:
Many market sources agree that the biggest problem facing underwriters of renewable energy risk is technology.
“Everything is changing so rapidly that it is difficult to get a grasp of one type of technology,” says Hiller. “As soon as insurers have become comfortable with what they are underwriting, the technology has moved on to the next big thing.”
Data from the International Renewable Energy Agency, an intergovernmental organisation, shows how innovative the market for renewable energy has become, with 648 patents published around the world in 2022 for offshore wind alone.
Earlier this year, China unveiled the world’s largest onshore wind turbine blades, coming in at 131 metres. Such technology can be particularly helpful for lower-velocity wind areas, including parts of Australia and some South-East Asian countries.
“Different countries require different technology solutions and some of these solutions are quite new,” says Andrew Taylor, Renewables and Advisory Lead for APAC at Xodus Group, a global energy consultant. “Additional data will be required to give insurers comfort regarding the risk profile of different technologies, particularly new ones.”
Such scarcity of data heightens the risk of insuring large-scale renewable projects, underscoring the importance of having robust underwriting capabilities in place. New technology can also push the boundaries of existing certification requirements, adding an extra layer of risk that insurers need to consider.
Third-party valuation services can go some way towards a better understanding of risk, but even here the pace of change is such that things can rapidly become out-of-date.
“We observe significant under-insurance in the market, which is why we always advise conducting regular valuation surveys,” says Harminder Chana, Director of Valuations at John Foord Analytics, a global valuation practice headquarted in Singapore. “Proactively monitoring asset values benefits both the insured and the (re)insurance market in understanding the replacement value of the assets, which leads to accurate premiums as well as enabling quicker and accurate claims settlement.”
Periodic evaluations can be both on-site (in cases where the technology may have materially changed) or remote (in cases where risk is unlikely to have significantly shifted).
There are other dangers beyond technology risk, too. The location of installations and their exposure to natural catastrophe risk is one. Supply chain issues and geopolitical risks are another.
“We’re installing offshore wind turbines in areas that have not been exposed to this kind of activity before, and so understanding the geology is fundamental to risk mitigation of these projects,” says Graham Stewart, an Australian-based Project Manager at Xodus Group.
In Japan, heavy rainfall over the past couple of years has contributed to a rise in insurance premiums for solar installations, according to Yoshiaki Otsuki, a Tokyo-based Lawyer for Anderson Mori & Tomotsune. Rising incidents in the theft of copper cables and a rise in the price of copper have also not helped.
The complexity of underwriting renewable energy risk makes the segment of the market particularly prone to price surges as capacity constraints start to materialise.
“Insurers don’t have 30 years of claims data to draw upon, so as soon as they are faced with one or two big claims, they may become much more cautious going forward,” says Marshall Lee, Climate and Sustainability Lead for Marsh Asia. “While there may still be capacity in the market, it will come at a price – and that price may be too high for some.”