Claims activity in the age of greening

Energy mix shifts to renewables

The transition to Net Zero will increasingly affect the risks insurers underwrite, especially in sectors like energy and construction. Under its climate strategy, Allianz will no longer underwrite new single-site or stand-alone oil and selected gas risks, oil and gas activities related to the Arctic and the Antarctic, or extra-heavy oil and ultra-deep-sea risks. The carrier also plans to require a robust ‘net-zero by 2050’ commitment from the largest hydrocarbon producers as a pre-condition for company-level insurance coverage and investments.

The growing relevance of renewables has important implications for insurers’ claims handling with increasing volumes. Claims related to carbon based energy assets and infrastructure — such as power stations and petrochemical plants — tend to be lower frequency and higher severity when compared with renewables. While large petrochemical plants are relatively few and far between, renewable energy sources are more numerous and geographically spread.

Tornadoes, hailstorms and floods

The expansion of renewables is seeing new technologies scaled up and deployed in new locations. Large solar and/or wind projects already operate, or are being constructed, in remote parts of Australia, North America, China, India, North Africa and the Middle East.
Extreme weather events are a particular challenge for renewable projects.

We are seeing an increase in extreme weather events globally affecting renewable energy projects, with claims in locations we have not previously experienced, such as from floods in Australia and Germany. For example, we recently had a claim where heavy rain and floods caused damage and delays for an onshore wind project in construction, affecting access roads, foundations, and earthworks.

Insurers have seen a growing number of claims from solar parks, the fastest growing part of the renewable market. Solar projects are exposed to an array of perils, including wildfires, storms, tornadoes and snow loading, although hail is by far the biggest risk for solar projects in terms of severity: Hail accounts for 60% of total solar losses with only 3% claims, according to Swiss Re.

Pushing boundaries

While renewable risks do not yet present exposures on the scale of a big petrochemical plant (which have insured values in the billions of dollars), they are becoming larger and creating sizable accumulations of risk for insurers. For example, a project such as the UK’s Hornsea 2 offshore wind farm covers 178 square miles, with 165 turbines producing enough energy to power 1.4 million homes.

Where turbine claims would previously have been in the hundreds of thousands, they are now in the millions, as turbines and projects have grown larger and larger. We have seen some significant wind-farm claims from damage to sub-sea cables, as well as lightning strikes, fires and mechanical breakdown.

Technology risks are the main driver of claims for offshore wind projects, where losses can be 10 times more expensive than onshore wind due to the need for specialist vessels and ports to carry out repairs. Recent years have seen large losses in offshore wind from damage to sub-sea cables, which can account for about 70% to 80% of losses in terms of overall claims amount incurred. Loss or damage to cables during transport or installation as well as damage caused by anchors and vessels, have driven multimillion euro claims in offshore wind.

Renewable energy technology also continues to evolve. For example, as wind farms are located further offshore — where winds are stronger and more reliable — floating wind turbines are being employed to cope with deeper waters. These, however, require deep ports for repairs, which can lead to increased costs in claims.

Learning curve for green construction

The green building industry is expected to grow rapidly in coming years as governments and business look to cut their emissions and hit net zero targets: Over a quarter (26%) of all greenhouse gas (GHG) emissions come from the construction and built environment.

Achieving net-zero carbon emissions in the built environment by 2050 will require investments of $1.7 trillion annually, according to McKinsey. Decarbonization of construction and the built environment will require a wide range of changes, from the development and adoption of low-carbon building materials, such as engineered wood, green steel and low-carbon concrete, to the greater use of insulation, heat pumps and off-site modular construction.

With the push for more sustainable buildings and construction, contractors are increasingly using materials that they are not familiar with, which can lead to accidental damage and costly mistakes. For example, Allianz has seen claims where non-traditional building materials, such as engineered wood, stored incorrectly, or left out in the elements, are no longer fit for purpose.

While the construction industry is only at the start of its transition journey, we are starting to see an influence on construction claims. With the introduction of innovative materials and sustainable building methods, there will inevitably be a period of learning, as the construction industry and insurers establish new loss prevention and risk mitigation practices and processes.

Dave Wilson is global head of Natural Resources Claims at at Allianz Commercial, and Christian Kolbe is global head of Construction Claims at Allianz Commercial.

This article is based on one that first published on the Allianz Commercial website. It is reproduced here with permission.

See also:

• How the insurance industry can take the lead in climate resilience
• Examining building resilience and earthquake risk
• Climate change, geopolitical instability seen as top risks