Brokers Respond to kWh Analytics' 2024 Solar Risk Assessment: Key Takeaways and Insights
The 2024 Solar Risk Assessment report has sparked a lively discussion among industry professionals about the evolving landscape of renewable energy insurance. To facilitate a deeper exploration of the report's findings, our team at kWh Analytics convened its inaugural Broker Council, bringing together leading brokers specializing in solar and renewable energy insurance. The council provided a platform for these experts to share their reactions to the report, discuss the implications for the industry, and identify actionable takeaways for stakeholders. The Broker Council meeting was hosted by geoff lehv of kwh analytics and consisted of the following participants: Rob Battenfield (AmWINS), Todd Burack (McGriff), Mike Cosgrave (Renewable Guard), Stephanie Coveney (Brown & Brown), Matt Giambagno (Marsh), Sara Kane (CAC Specialty), and Alex Morris (WTW).
Emphasizing Equipment Resiliency in the Face of Extreme Weather
The brokers at the council agreed with the Solar Risk Assessment report's emphasis on the growing impact of extreme weather events on renewable projects. Todd Burack from McGriff highlighted the importance of technological resiliency, stating, "Most of the recent discussions I’ve been a part of with asset owners have gravitated towards technological resiliency. Modeling plays a tremendous role, but I think many carriers who’ve written some of the marquee (hail) losses from the past few months will agree that the losses occurred on projects that actually modeled quite favorably. Many carriers are still playing ‘modeling catch-up,’ and the nature of extreme weather is that it’s hard to predict."
Takeaway: To mitigate the risks posed by extreme weather events, project stakeholders should adopt a comprehensive approach to risk management that includes careful partner selection, investment in defensive equipment capabilities, and the development and implementation of well-defined operational procedures.
Challenges for Pure Play Developers
Sara Kane from CAC emphasized the challenges faced by pure play developers, those looking to ‘flip’ assets to long-term owners, in understanding and managing insurance risks: “The biggest opportunity for better site resilience that we see is for pure play developers to incorporate insurance considerations in early-stage project development. These players, who will likely sell prior to construction, have not historically had a way to understand how the insurance market values different resilience measures in their underwriting decisions, and yet those decisions – site selection, equipment choice and design – will impact insurance costs and ultimately matter in their project sale. We as an industry would be collectively better off if all the projects coming to market had the benefit of insurance diligence at the early-stage development phase, as projects would likely be more resilient."
Takeaway: Developers who plan to sell their projects should be well-versed in potential insurability challenges and subsequent impacts on project sales. Developers who fail to adequately address natural catastrophe related risks may find it more difficult to secure favorable sale terms or even struggle to find buyers altogether.
Navigating the Risks and Opportunities of Battery Energy Storage Systems (BESS)
The Solar Risk Assessment report's coverage of the risks and opportunities associated with the rapid growth of Battery Energy Storage Systems (BESS) prompted a thoughtful discussion among the brokers. Commenting on the Lloyd’s article citing that the global battery storage industry is poised for 13x growth over the next few years, Mike Cosgrave from Renewable Guard shared insights from their in-house battery storage engineer, noting that battery construction and integration was the cause for 36% of system failures. “We’re seeing a lot of project delays due to a lack of transformers,” Cosgrave added. “If we’re getting cells from China and overseas, replacing those in a few years might be a challenge if tariffs are in play. While there may be some headwinds to achieve 13x growth, the prospect of achieving that milestone is very exciting for the industry.”
Stephanie Coveney from Brown & Brown added that there are still quite a few unknowns about BESS systems that can make insurance pricing and underwriting difficult: "We still don’t have consensus on how battery units should be spaced, and carriers are setting their own terms, some asking for 25 feet between units, and some manufacturers recommending a small gap around 3 feet between units. There are still a lot of questions to answer in this space.”
Takeaway: As the BESS market continues to expand, project developers should ensure that their projects are designed and operated following industry best practices, with a particular focus on fire safety, thermal management, and system integration.
Exploring Alternative Risk Transfer Solutions
The brokers at the council expressed interest in the Solar Risk Assessment report's findings on the growing popularity of alternative risk transfer solutions, such as parametric insurance and captives, in response to rising traditional insurance premiums. In the context of renewable energy insurance, parametric solutions offer an alternative to traditional indemnity-based policies. Parametric insurance provides predetermined payouts based on the occurrence of specific triggering events, such as a hurricane of a certain category or a hail event with hailstones exceeding a specified diameter, rather than the actual loss incurred by the insured project.
Alex Morris from WTW shared his perspective on the increasing viability of parametric solutions: "I think parametrics are getting close to being viable when they were simply not an option just four or five years ago. Excess catastrophe coverage is becoming extremely expensive, and now all types of solutions are back on the table. Sponsors are starting to see the value in higher, upfront investments into resilient equipment and defensive measures to protect their assets for the long term."
Matt Giambagno from Marsh shared his view that “parametric policies are still a gamble. It’s an untested market, unlike traditional property insurance. It’s hard to gauge the likelihood of extreme weather events, but the continuous price increase of excess natural catastrophe coverage is making alternative solutions like these more attractive.”
Takeaway: As the cost of traditional insurance continues to rise, project developers and asset owners are exploring alternative risk transfer solutions.
Addressing Variability in Pricing and Terms
The Solar Risk Assessment report highlighted the variability in pricing and terms across the renewable energy insurance market, a finding that resonated with the brokers at the council. In response to an article by kWh Analytics highlighting that the use of industry-standard modeling assumptions in pricing can lead to an over- or under-estimation of solar risk, Rob Battenfield from Amwins noted, "The variability of pricing and terms and conditions widely varies across the broking world. We see this a lot when we are placing excess severe convective storm policies (hail) for example - different programs can have widely different results. Working with brokers and underwriters that are knowledgeable in the space is a recipe for success, and can make or break a project from the insurance perspective.”
Takeaway: To navigate the complex and varied landscape of renewable energy insurance, project sponsors should partner with brokers and underwriters experienced with renewables early in the project planning process.
The brokers' reactions to the 2024 Solar Risk Assessment report and the insights shared at kWh Analytics' inaugural Broker Council underscore the value of staying informed about the latest trends, challenges, and opportunities in the renewable energy insurance market. As the industry continues to evolve, close collaboration between brokers, sponsors, underwriters, and other stakeholders will be essential to effectively manage risks and drive the sustainable growth of the sector.
Read the 2024 Solar Risk Assessment here: https://www.kwhanalytics.com/solar-risk-assessment