WTW: Power and energy firms face increasing disruption

Companies in the power and renewable energy sectors should be preparing themselves to contend with disruption to their businesses from a range of sources, including potentially adverse developments in the insurance market, according to a Willis Towers Watson market review.

The risks facing the sector are wide-ranging and ever-changing, it warns, and include the effects of climate change and geopolitical risk, which remain at the top of boardroom agendas as they continue to create uncertainty. In addition, rapid innovations in technology present both threats and opportunities.

“It is incumbent on the insurance industry to embrace the risks presented by these new developments and provide the appropriate risk advisory and risk transfer / retention solution,” says head of Willis Towers Watson’s GB Natural Resources division, Graham Knight. “It is essential that today’s power and renewable organisations prepare themselves for the turbulence that disruptive change inevitably brings.”

Key risks in the power and renewable energy market (Source: Willis Towers Watson)

• The reality of climate change, which is influencing not only the composition of countries’ energy mix, but also the underwriting positions of large parts of the insurance market, as the major European carriers pull back from the coal-fired generation sector for environmental reasons;

• Independent and smaller coal operators which lack a diversified portfolio may be the most seriously affected by the consequent withdrawal of market capacity;

• The Lloyd’s ‘Decile 10’ initiative is setting the tone for a more rigorous global insurance market environment in 2019;

• The development of innovations in power generation, such as larger wind turbines with increased output, could be frustrated by insurers’ unwillingness to embrace the risks associated with unproven generation technologies;

• Renewable energy developers face geopolitical concerns, with national governments having the power to change favourable regulatory regimes – for example, by cutting renewables incentives, thereby impacting the developers’ pre-agreed investment;

• Ever-mutating cyber risks present not only direct threats to companies’ own operations but also put their supply chain and customer accessibility in jeopardy.

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