The shift is major for renewables in the insurance sector: policyholders are seeing their premiums rise by as much as 40% from last year, mainly because of increasing natural catastrophe claims prompted by increasingly severe weather conditions associated with climate change. Hail and lightning storms have exposed weaknesses in risk-pricing models, even for renewable technologies, including photovoltaic panels and wind turbines, which are becoming more vulnerable to natural causes of damage.
The increase of more frequent and violent climatic conditions makes it difficult to calculate risks for insurers. For instance, hailstones the size of golf balls have destroyed installations meant for solar power in northern Italy; such losses are huge. The Swiss Re Institute is one of the sources hinting that last year’s destruction by a hailstorm in northern Italy stood at $5.5 billion. Older rooftop installations appeared to be bearing the brunt of destruction more. Increasing strikes on bigger wind turbines is another headache for insurers. New and taller turbines with longer blades are more prone to lightning and are driving up claims in the renewable energy space.
Rates are going up sharply in natural disaster-prone areas. For instance, Hurricanes Helene and Milton, which struck Florida at the end of 2023, are likely to bring in some heavy claims in the renewable area alone, with Zurich estimating its total losses from those events at around $360 million. Insurers are now reevaluating their strategy, while others are even withdrawing from some markets due to unviable risks. Others are capitalizing on the opportunity for expansion in the renewables area.
Despite the challenges, however, insurers are increasingly viewing renewables as both a risk and an opportunity. As they work through pricing and coverages for renewable energy, the insurers are also responding to investor demands for stronger ESG performance. Companies such as Allianz, Hiscox, and Zurich are actively increasing their presence in the renewable insurance market. New entrants also recently joined, including FM, Fidelis’s Novagen, and Volt Underwriting, which mark the sector’s growth.
There is a growing global demand for renewable energy that poses unique insurance needs. In Britain, for example, insurers outside Lloyd’s reaped a 43% year-on-year growth in renewal energy insurance premium income to £532 million in 2023, according to an International Underwriting Association report. This follows an upward trend, whereas commercial insurance rates are trending downward, per their assessments. However, with these issues being faced by the insurers, pressure mounts in the form of calls for innovative solutions in an expanding and increasingly exposed infrastructure to climatic hazards.
Conclusion
The fast pace of growth of renewable energy offers both challenges and opportunities for insurers. Increasing costs of claims mean rising premiums, but this also means commitment toward supporting the global energy transition on insurers’ part. Moving down the track, the sector is changing to better understand and mitigate unique risks associated with clean energy as more firms gain entry into the renewable insurance market. COP29 climate discussions are soon to take place, but such developments spell out a compelling critical need for resilient insurance strategies that will maintain the momentum for renewables worldwide.
Source: Reuters