Location, location, location: how catastrophic risks can shape renewable energy insurance premiums

Originally published on PV Tech
By Bobby McFadden, kWh Analytics, and Keaton Carlson, Renewable Guard

As a renewable energy managing general agent (MGA) and a broker, one of the most common questions we hear from solar and battery asset owners is: “Why do my insurance premiums keep rising, even though I haven’t had a claim?” It’s a frustrating and often confusing situation for many in the industry, but the answer lies in the changing landscape of natural catastrophe (nat cat) risks.

For certain carriers, when a significant loss is incurred, the pricing approach for comparable accounts in the book could be affected as well, adjusting insureds’ rates with no claim activity come renewal. Over the past few years, however, nat cat events have taken a major role in driving insurance premiums across carrier’s books. Nat cat risks are changing, and locations with historically temperate weather are experiencing extreme disasters.

As global temperatures rise, we are seeing more intense hurricanes, prolonged droughts and heavier rainfall events. These changes in weather patterns are altering the risk landscape for businesses, specifically impacting industries with exposed assets, such as renewable energy. Climate change is affecting the frequency and severity of natural catastrophes, making it more difficult for asset owners to secure affordable insurance coverage.

Take the example of an asset owner who had a solar site in Georgia. In 2023, the Federal Emergency Management Agency (FEMA) updated the local Flood Insurance Rate Map (FIRM), and the insured saw their flood premium dramatically spike by 300%, as the site was now located directly in a high hazard flood zone.

With major hurricanes and flood events, the topography under established sites changes, creating higher risks in some areas. Further, land development and paving over natural terrain increases water runoff.  This is not an isolated story; tornadoes are ripping through the Midwest, hailstones are increasing in size, and even New York is experiencing earthquakes.

These events can cause significant damage to solar panels, wind turbines, battery assets and other equipment, leading to costly repairs or replacements. As the frequency and severity of these events increase, insurers are adjusting their rates to account for the higher risk. As the risk landscape shifts, admitted carriers are facing capacity constraints in regions with high catastrophe exposure, such as coastal areas or flood zones, limiting the options available to asset owners.

Some catastrophe risks, such as earthquakes in California, have gotten so severe that some carriers have pulled their coverage for the state completely. Non-admitted carriers, however, can provide flexibility around regulated rates. The losses from catastrophe events ripple through insurers’ books, leading to rate increases even for asset owners who haven’t experienced losses directly.

It’s a vicious cycle. Renewable assets are a large part of the United Nations Climate Action Plan, and every industry stakeholder, including carriers, has a vested interest in ensuring these assets are built to last. So, renewable energy asset owner, here is what you can do to manage your risk profile:

• The cheapest time to implement resiliency is during the design phase of a project. Consult with your broker and carrier on location, equipment type and catastrophe protocols before assets go in the ground.
• Invest in high-quality equipment from reputable original equipment manufacturers (OEMs) and ensure that specifications are appropriate for the site’s specific catastrophe risks. For example, 3.2mm heat-tempered glass is becoming the best practice in hail-prone Texas.
• Implement robust risk management practices, such as stow programs for hail, wind, flood and snow, as well as hurricane preparedness plans and spare parts programs. Have a fire suppression system and thermal runaway management plan ready for your battery energy storage system (BESS) projects.
• Partner with experienced operations and management (O&M) providers that can offer precautionary services tailored to the site’s catastrophe exposures. Location matters; rats in Nebraska chewing wires pose a different risk than lizards slithering through transformer boxes in New Mexico. O&M providers have noted that vegetation mix heavy in seeds can attract more rodents to accumulate used underneath panels.
• Collaborate with brokers that specialise in renewable energy and can effectively communicate the nuances of catastrophe risk pricing to carriers. Not all carriers are made the same, and asset owners deserve an insurance price that is based on the true merits of their risk. By addressing climate risk with thoughtful equipment selection and strong risk management practices, asset owners can experience reduced insurance premiums and loss activity. When these factors are contemplated, sites can benefit from improved resiliency and reduced costs.

In the face of increasing natural catastrophe risks and rising insurance premiums, it has become abundantly clear that the renewable energy industry must adapt and evolve to ensure its long-term success. This is not to say that insurance is out of reach financially, but to explain that there are plenty of tools in the belt that can help owners reduce these costs.

Asset owners should take a proactive approach to risk management, not only to protect their investments, but also to contribute to the global fight against climate change. Insurance carriers and brokers can help by conducting their own research, collecting data and giving actionable feedback to the industry on designing, constructing and maintaining the best, most resilient renewable energy assets.

We cannot afford to let the vicious cycle of climate change and rising insurance costs hinder the deployment of renewable energy infrastructure. There’s an industry-wide incentive to share our knowledge and expertise, and to find innovative solutions that will allow us to build a more resilient and sustainable future.

Bobby McFadden is an underwriter at kWh Analytics, which manages a comprehensive database of renewable power assets in the US. Keaton Carlson is a risk manager at Renewable Guard, an insurance broker servicing the renewable power sector.