How the renewable energy insurance sector is entering its maturation phase

How the renewable energy insurance sector is entering its maturation phase | Insurance Business Canada

Insurance News

How the renewable energy insurance sector is entering its maturation phase

Sovereign head breaks down the state of the market

Insurance News

By
David Saric

Having spent over two decades in the energy insurance sector, Geoff Rubel (pictured), Sovereign Insurance’s national resource practice – underwriting specialist, has witnessed a robust ecosystem develop around renewable energy within the insurance supply chain, signalling a maturation phase.

“A lot of insurance partners across the globe, including our reinsurance partners, are very invested in creating a low carbon economy,” Rubel said.

“Furthermore, if you look within our distribution channels, there is more dedicated brokerage, marketing and engineering teams to service this business.”

As a result, renewable energy sources such as wind and solar are becoming their own underwriting discipline.

“Previously, this type of coverage was shuffled into a more conventional energy underwriter’s portfolio who would also be dealing with oil, gas, mining and power,” Rubel said.

“However, now we see an exchange of ideas and pathways that are getting established to share information within the entire industry, which is what we need going forward as we move into this mature phase.”

This is especially important in the province of Alberta, as its seven-month moratorium on large scale renewable energy projects is expected to end this week.

“With more projects built, and more data collected, the underwriting information will get better as a discipline,” Rubel said.

“There will be more opportunities to write business and create a profitable industry while also supporting the low carbon transition a lot of insurance companies are anticipating.”

In an interview with Insurance Business, Rubel spoke about some of the challenges the renewable energy insurance sector will face as it matures at a faster pace – and what rates and capacity look like in the market right now.

Hurdles that renewable energy insurance is facing

One of the most cumbersome threats to renewable energy insurance is the uptick in extreme weather activity, especially as wind and solar energy farms must have direct access to natural resources to function, a Catch 22 of sorts.

“If you look at the coast of Atlantic Canada, where it may be a good place to build a wind farm on land, there’s also more exposure to windstorm and hail force winds, and these wind towers must be engineered to handle that force,” Rubel said.

“Meanwhile, the prairies of Alberta and Saskatchewan are prime for solar farms because the sun shines constantly. However, these hot, dry and sunny conditions create more powerful convective storms that are fairly isolated in these areas.”

There is also the problem of wildfires, especially in Alberta, which is resulting in higher premiums for insureds due to catastrophic losses and 2,214,957 hectares being burned.

“For the most part, the actual facilities themselves have sufficient cutbacks and controls to withstand these fires, but there is still auxiliary equipment that’s on the ground, such as transmission and distribution lines that run through the forest that can be damaged by severe for forest fire activity,” Rubel said.

Legislatively, while Alberta will be lifting its ban on new renewable energy projects on February 29, according to CBC, it will most likely not return to its previous reputation as a hotbed of investment in the sector, negatively impacting its reputation.

Conversely, pausing approvals for new renewable energy projects has affected 118 projects worth $33 billion of investment in the province.

“Advocates for solar and wind have suggested that this provincial stance has already sent projects into the US and other venues because you’ve got this capital to deploy and projects that need to be built, which has broad business implications for insurers,” Rubel said.

How is capacity in the renewable energy insurance market?

When speaking about capacity and rates in the renewable energy insurance market, Rubel said it was hard to gain a complete picture.

“There’s still a bit of an evolution that is expected to persist in the years to come,” he said.

On a positive note, the general enthusiasm around low carbon energy solutions within the insurance space, as well as stakeholder and shareholder support, has manifested in healthy competition.

“However, from 2015–2021, I’d say, the boom that solar and wind experienced, as well as all of the new energy projects that are in production, resulted in a lot of insurance companies anticipating this Gold Rush, resulting in competition that was probably too aggressive,” Rubel said.

“This inevitably drove pricing and deductibles down to unacceptable levels that weren’t sustainable.”

Now, as costly loss events occur due primarily to nat cats, including equipment failure and damage, there seems to be more of a rationalization period going on in the market as a result.

“I expect this to restrict capacity in certain areas like Saskatchewan and Alberta, where insureds may not be able to get their full policy limit,” Rubel said.

“If the market is able to positively drive rate and maybe a lot more capacity, you can kind of partition out the expected net cash, whether it be hail or wildfire, to a more manageable level.”