What does a softening market look like for the renewables sector?
The renewables landscape is dynamic where governments, businesses, and communities are striving to keep pace in the race to net zero amidst a rapidly evolving risk landscape. The goalposts of the energy transition will require substantial investment in technological innovation, holistic regulatory response, and long-term strategic thinking informed by increased collaboration and knowledge sharing in the short term. Concurrently, this process will require an insurance industry that keenly understands the risks associated with shifting to a lower carbon economy, as well as the complexities and benefits of deploying new technologies to make global net zero ambitions a reality.
At present, the renewable energy insurance market is softening. But what does this mean in practice? With increased insurer capacity, including the entry of new syndicates, comes competitive pricing and favourable terms for policyholders. We query whether rates will ‘free fall’ given the renewables sector has a shorter historical claims record creating a level of uncertainty.
Of course, it will be crucial for policyholders to be vigilant about emerging and inherent risks (technological advancements and natural catastrophe exposure) associated with renewable assets and to ensure that underwriting quality remains a priority. That is, partnering with the right insurers at project inception. In order to avoid the pitfalls of rushing to insure cutting-edge renewable technologies during a softening market, paradoxically, policyholders may expect increased underwriting scrutiny despite market softness. Further, a competitive insurance market is only meaningful if underwriters offer valuable coverage solutions underpinned by experience.
Only seasoned underwriters bring an established source of technical and operational knowledge that add value to developers. A policyholder dealing with the very real challenges of the degradation curve or network congestion would also just prefer to deal with an insurer who demonstrates commercial acumen of the wider sector. Conversely, new capacity providers striving to gain market share may not fully appreciate the nuances of the industry leaving assets vulnerable to uninsured or undesired events in the future. The purpose of insurance or alternative risk solutions should not be seen as just a box ticking exercise for project financing or a cost-saving tool, but, at renewal, should be seen as contracts that can be negotiated commensurate to commercial need. A market standard approach might not cut it for large-scale portfolio developers. A sophisticated level of dialogue needs to take place between insurer and policyholder in order to foster the best outcomes over the lifetime of the assets insured.
Hopefully insurers take this opportunity to strategically partner with developers and operators and shift away from mere capacity providers to proactive players in the energy transition.
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