LONDON — Policyholders in the renewable energy insurance market are paying between 20%-40% more for cover today than a year ago as insurers seek to recover the cost of “devastating claims” in regions hit by natural catastrophes, industry sources say.
Unpredictable weather patterns have exposed weaknesses in the models used to price risk as golf ball-sized hailstones on solar panels and lightning strikes on wind turbines have left insurers with much bigger bills than expected.
Climate scientists have said violent weather is more likely because of global warming that COP29 climate talks will seek to address in Baku next week.
“Insurers have learnt the hard way in the last three-to-four years, there have been some devastating claims,” Alex Nelson, class underwriter at Lloyd’s insurer Chaucer, said, referring to renewable energy insurance.
There is an opportunity as well as a cost, especially as insurers pass on their liabilities to clients. They can at the same time fend off some of the pressure from investors to improve their Environmental, Social and Governance (ESG) credentials.
As a result, while some insurers have stopped home insurance in some catastrophe-hit areas, more are offering cover for renewables.
“It enables them to carry on supporting the energy sector by saying they’re supporting the energy transition,” Tom Sexton, head of renewables and energy at broker McGill and Partners, said.
New entrants into renewable energy insurance in recent months have included global property insurer FM, Fidelis unit Novagen and energy insurer Volt Underwriting.
Lloyd’s insurer Beazley said it started direct underwriting of renewable energy this year. Major insurers Allianz, Hiscox and Zurich also told Reuters the market was growing.
UK commercial insurers outside Lloyd’s of London saw their premium income from renewable energy insurance jump 43% in 2023, to 532 million pounds ($690.7 million), the International Underwriting Association said. Lloyd’s of London also said its renewable energy sector grew in 2023.
The premium hikes for onshore renewable energy installations in areas hit by natural catastrophes contrast sharply with declining rates in most other commercial insurance lines, data from Marsh showed.
The risks are nevertheless mounting.
Increasingly large infrastructure can also be an issue as the world seeks to speed the transition to low carbon energy and taller offshore wind turbines with longer blades are more vulnerable to lightning strikes.
Authorities closed beaches on the south shore of Nantucket Island in Massachusetts after debris washed up from a broken wind turbine in July.
“Manufacturers competing on price and size…has led to some quality issues,” said Steven Munday, natural resources energy leader at broker Willis Towers Watson.
Hurricanes Helene and Milton that struck Florida in September and October respectively are also likely to result in catastrophic losses for onshore renewable energy, Penny Seach, group chief underwriting officer at insurer Zurich, said.
Zurich said on Thursday its total losses from the hurricanes may come in at just under $360 million.
Giant hailstones caused insurance losses totalling $5.5 billion in northern Italy last year, according to the Swiss Re Institute, with solar panels on ageing rooftops considered particularly vulnerable.
($1 = 0.7702 pounds)
(Additional reporting by Susanna Twidale in London; editing by Barbara Lewis)
