Following a prolonged period of hard market conditions, the property and business interruption insurance market in the power sector is beginning to shift, according to WTW’s Power Market Review for 2024.
The global advisory and broking firm reported that while smaller attritional losses persist, the absence of significant large-scale losses over the past two years is driving more competitive pricing in property and business interruption coverage.
The report highlighted that international liability markets have also stabilised, showing a slight increase in capacity. This, in turn, is creating softer market conditions, intensifying competition, and contributing to downward pressure on rates.
As demand for electricity continues to surge globally, power companies are extending the lifespan of aging assets. The report said insurers are expected to require detailed maintenance strategies, particularly for older infrastructure, to assess the associated risks.
While insurers are increasingly focusing on greener portfolios, the inherent risks of evolving technologies are a key concern. The rise of intermittent energy sources, such as wind and solar, is pressuring power grids to become more flexible and adaptive.
This aligns with broader industry concerns about climate change and its influence on insurance markets. A new report – developed by Ping An Insurance (Group) Company of China Ltd, in partnership with several institutions – highlighted how climate change is reshaping the insurance landscape.
The report pointed out the growing frequency of extreme weather events, which are placing increasing financial pressure on insurers due to higher compensation claims. It underscored the need for insurers to build climate resilience into their business models.
Transitioning to renewable energy sources has led to a decentralisation of power generation, with assets often located farther from consumption centres. This is creating potential bottlenecks in transmission infrastructure, especially in regions with limited grid development.
Risks tied to coal and wildfire exposures, particularly in the US, continue to face intense scrutiny.
Despite the shift towards renewable energy, thermal power remains essential to base load supply strategies in many regions.
Lyo Foo, head of power, Asia, at WTW, noted that the Asian power insurance market has experienced hardening in recent years, but the availability of more capacity at the beginning of 2024 has marked a return to a buyers’ market.
The transition from coal to non-coal power, coupled with a phased reduction in underwriting existing coal risks, is pushing insurers to explore new investment opportunities.
As a result, we are seeing more insurers offering longer-term agreements, and rates are expected to soften over the next 12 months.
Foo further noted that supply chain disruptions are an emerging concern for insurers, especially in relation to business interruption (BI) cover.
“Amid unrest and geopolitical issues, the movement and transportation of materials and equipment has been significantly impacted, increasing the lead time for repairs and delivery times for large or complex items of machinery,” he said, adding that this is making it essential for power companies to secure adequate BI indemnity periods, as they are reluctant to trade these protections for lower premiums.
Rupert Mackenzie, head of global natural resources at WTW, added that in a softening market, power companies will need to focus on accurate asset valuations and supply chain risk management.
“Making strides in a softening market will demand renewed focus on getting valuations right, investing in risk engineering for ageing assets, and managing supply chain volatility through contingency plans,” he said.
He said that insurers will also need to collaborate closely with power companies to better understand their specific operational risks and develop commercially appropriate coverage.
Mackenzie further emphasised that transparency will be critical for companies seeking to right-size their insurance coverage.
“With the market approaching a new phase, the value of getting this approach right is essential to take full advantage of opportunities. The better the market understands the client’s business, the more accurate and flexible the solutions can be,” he said.
