Insurance scrutiny intensifies on coal, wildfire risks

However, power Industry business interruption sectors see improved pricing.

The global (re)insurance market for the property and business interruption (BI) sectors in the power industry is showing signs of easing after enduring a prolonged period of hard-market conditions, according to WTW.

Market cycles are starting to turn, as softer pricing and increased competition are expected to emerge, particularly in the property and business interruption (BI) space, said WTW’s Power Market Review.

Whilst lower-level attritional losses remain consistent, the absence of significant large-scale losses in 2023 and 2024 has prompted a more favourable pricing environment.

The international liability market has also been stable, with a small increase in capacity leading to heightened competition and downward pressure on rates. 

Key factors driving the changes include global electrification, an increasing appetite for greener energy portfolios, and the evolving landscape of power generation and transmission.

As the demand for electrification continues to surge worldwide, companies are extending the lifespans of their power assets. Insurers are looking for clear maintenance strategies from these companies, particularly with respect to ageing infrastructure. 

Ensuring that assets are properly maintained and modified for their extended use is critical for managing risk.

Whilst there is rising interest in greener portfolios, evolving technologies in the energy space come with inherent risks, particularly when it comes to unproven technologies. 

The increasing reliance on intermittent power sources like solar, wind, and hydroelectric power is placing pressure on the flexibility of power grids and operating systems.

Transition challenges are mounting for Transmission System Operators (TSOs) as the power grid evolves from centralised systems to those reliant on renewable sources. Transmission bottlenecks are becoming a concern, especially as generation assets are now often located further from load centres, with transmission infrastructure still developing in these new areas.

Insurance placements involving coal or wildfire exposure, as well as those with significant US-based risks, continue to face heightened scrutiny from insurers. Whilst thermal power remains crucial for base-load supply in many countries, insurers are phasing out coal underwriting and shifting toward non-coal power opportunities.

Asia's power market shifts

Lyo Foo, head of Power, Asia, at WTW, highlighted that Asia’s power sector has transitioned from a period of market correction and hardening to a more favourable environment for buyers. 

This change, particularly in early 2024, has led to greater availability of capacity and increased competition, with insurers looking to offer long-term agreements and softer rates. 

Insurers are also adjusting their appetite, moving away from coal-related risks and targeting non-coal power opportunities.

Supply chain volatility is emerging as a top concern, particularly regarding the business interruption (BI) component of insurance. 

Geopolitical tensions and unrest are affecting the movement of materials and machinery, lengthening repair and delivery times for large-scale equipment. As a result, power companies are prioritising the adequacy of BI indemnity periods and are unwilling to sacrifice them for premium savings.

Meanwhile, as the market softens, insurers and power companies must focus on accurate asset valuations, risk engineering for ageing assets, and robust supply chain management, Rupert Mackenzie, head of Global Natural Resources at WTW, said. 

Mackenzie advised that insurers work closely with power companies to understand their operations and technologies, helping to tailor commercially viable solutions. Transparent risk presentation by power companies is essential for insurers to right-size coverage effectively.