Renewable energy insurers remain optimistic despite challenges, as the industry adapts to support the transition to a net-zero future, according to a report by WTW.
Despite numerous risks facing the renewable energy market — including climate issues, casualty deterioration, social inflation, and geopolitical conflict — insurers entered 2024 with optimism for the sector, according to an analysis by WTW.
According to the WTW Renewable Energy Market Review 2024, this positive outlook was driven by consistently robust technical rates, a relatively benign Gulf of Mexico windstorm season, and natural catastrophe losses below predictions. This optimism is particularly significant in the context of the renewable energy sector’s growth projections and the insurance industry’s role in supporting the transition to a net-zero future.
Renewable Energy Insurance Market Trends
The renewable energy insurance market has seen a significant shift in recent years, with insurers increasing their engagement and capitalization to capitalize on the sector’s growth projections, especially amid the movement to net-zero carbon emissions, the report stated. This trend has led to upskilling of underwriters and the creation of dedicated renewable energy teams within insurance companies, according to the report.
Additionally, there has been an influx of new capacity from traditional construction, power and utility, and oil and gas markets, as insurers recognize the potential for growth in the renewable energy sector.
To better serve the renewable energy market, insurers are pooling their expertise through in-house underwriting specialties or managing general agent (MGA) structures, the report said. This allows them to develop a deeper understanding of the unique risks associated with renewable energy projects and provide more tailored coverage solutions.
However, achieving profitability in the renewable energy insurance market has been challenging due to frequency and severity risks. Frequency risks are associated with understanding the technical elements of the assets being insured, which can be complex and vary significantly between different types of renewable energy projects, the report noted. Severity risks, on the other hand, are related to natural catastrophe events and the limitations of global natural catastrophe modeling systems in accurately assessing the potential impact on renewable energy assets.
Challenges and Opportunities
Changing power and utility market dynamics also present challenges for insurers. Many renewable technologies have lower sums insured than their carbon-based alternatives, making it very difficult for insurers to maintain their market share of written premium by supporting the new low-carbon technologies, according to WTW.
Supply chain challenges are another significant hurdle. McKinsey’s 2023 Renewable Energy Supply Chain report found planned investment between now and 2030 will lead power generation from committed solar and on and offshore wind projects to triple from 125 GW to 459 GW, the report stated.
“More mature renewable technologies — particularly for onshore wind and solar photovoltaic risks — continue to challenge insurance markets with well-known risks,” wrote Steven Munday, Global Renewable Energy Leader, Natural Resources Global Line of Business of WTW. “Meanwhile, less proven technologies — such as larger wind turbines, a global increase in floating solar installations, the evolving green hydrogen industry, the advent of utility scale BESS systems and the move towards intensive energy farming with hybrid systems — are driving markets to reflect on their appetite and innovate their delivery strategies.”
Pricing Projections and Market Outlook
Insurers’ results in Q1 2024 have been the best in a decade, according to WTW.
The report noted that underwriters at Lloyd’s of London, a leading market for power and utility risks, last year delivered its strongest underwriting result since 2006 with a combined ratio of 84.0% for 2023, the report noted.
Against this backdrop, Patrick Tiernan, Lloyd’s chief of markets, described the energy transition as a “phenomenal opportunity,” the report stated. Tiernan has said that Lloyd’s aims to attract more climate and sustainability-focused syndicates to the market.
Leaders in the renewable energy sector were seeking low single-digit-rate increases at the start of the year, WTW noted. However, there is a focus on imposing natural catastrophe sub-limits, particularly for solar photovoltaic assets, according to the report.
As a result, buyers in the renewable energy sector should be in a much-improved position going into H2 2024, although there will be a continued focus on risk-adjusted rates, WTW stated.
Access the full report from WTW here. &
