Power sector struggling with COVID-related risks

The power sector is struggling with COVID-19-related pressures, as workforce availability and supply chain continuity prove challenging. This comes at a time when the sector is already under pressure to fulfil its ESG commitments.

According to a report published today by Willis Towers Watson, the transition to a low carbon economy requires a "fundamental reappraisal of risk" in the sector, but that achieving a satisfactory ESG rating will be critical in enabling power companies to attract and maintain the support of key stakeholders in the future.

Graham Knight, head of global natural resources at Willis Towers Watson, said: “In these unprecedented and uncertain times, the issue of COVID-19 remained uppermost in all our minds as the power industry and their stakeholders begin to analyse the effects on their balance sheets and on their overall risk landscape."

On the plus side, WTW says some of its clients have taken advantage of the current and ongoing decrease in electricity demand and lower pricing to proactively advance scheduled maintenance operations forward, contrary to insurer expectations.

“As the power generation sector and its insurance partners adjust to conducting business during the COVID-19 pandemic, all parties must remain disciplined in assessing and managing risks. Risks that are magnified by the pandemic, including the availability of plant and vendor support personnel and any disruption to operation and maintenance tasks, should be managed with the joint goal of ensuring plant reliability. At a time where plant resources might be limited, open and transparent communications with their insurance risk consultants should leveraged to the benefit of all,” Knight added.

Under-powered? (Source: Willis Towers Watson's Power Market Review)

In its Power Market Review, WTW highlights the following trends:

Capacity: Global capacity for Power business has reduced in two different ways; firstly, some insurers have withdrawn from the sector entirely and secondly, we have seen a reduction in the capacity that the remaining insurers are agreeing to deploy. Now in 2020, the total global capacity is approximately £2.4bn, with a realistic capacity figure of approximately £1.2bn.

Losses: With average global annual losses being approximately £2bn, the report concludes that the global premium for the power sector has been below the average annual loss amount for some time.

Rating levels: In Q2 2020 most programmes saw rating increases of between 15-20%. At the time of writing, this has stayed relatively stable on a risk rating basis based on occupancy. The COVID-19 global pandemic has led to the global market place operating at a very uncertain time which has led to some hitherto unforeseen challenges and variances in offers.

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