Insurers and clean power asset owners must reset the benchmark for renewable energy risks in the US following an increase in the frequency and severity of insurance claims in the last five years, according to GCube Insurance.
The renewable energy specialist insurer said component vulnerability, defective designs and changing manufacturer warranties, coupled with extreme weather damage, have lead to the increase.
In particular, accelerated build times have led to a “hitherto unforeseen amount of material damage” during construction, it said.
GCube said that construction companies have come under pressure to build projects more efficiently and in shorter timeframes and so have used less experienced personnel to handle increasingly complex equipment.
At the same time, two factors have led to higher costs arising from component failure.
First, increased complexity means that components are harder to replace in isolation.
Second, uncertified models still exhibit design issues that can lead to equipment failure.
The insurer added that the recent focus on cost-cutting and efficiency has also led to diminished warranty strength by manufacturers.
“In light of increased losses and amid financial pressure, the scope and quality of (manufacturer) guarantees has been reduced, meaning that asset owners may end up without sufficient (manufacturer) support when equipment fails,” it said.
All of the issues highlighted by GCube are exacerbated by extreme weather risk, with events such as wildfires, hurricanes and tornadoes, the company added.
Extreme weather accounted for 15% of all claims in 2018 and is likely to be higher in 2019, GCube said.
Adding: “Insurers must adjust their loss expectancy to match the changing nature of risk; in turn, project owners must communicate their needs and project-specific features to their insurance partner.”
GCube Insurance president Jatin Sharma said: “The renewables market has started to outgrow subsidies, and with that comes a whole new level of competition.
“This pressure often has unforeseen results: apart from anything, increased M&A activity means you might end up with a project with a loss history that isn’t factored into calculations.
“We cannot overstate the benefits of open discussion between insurers, asset owners and investors.
“There are concerns within renewables that as the industry has matured, the insurance market has not kept up.
“Frankly, if we want to protect our future renewables growth, we collectively need to accept that it’s not the same industry as it was five years ago.”
“Increased price competition and a rush to acquire developer pipelines mean that some areas of the industry pose a much higher risk than before – and some aspects are more routine. It’s time to adjust our expectation of ‘normal’ risk.”