Renewables are crying out for good data

Renewable energy could be even bigger for insurers, if the data used to underwrite these emerging risks could produce more pricing certainty. Because with less uncertainty around any new renewables project being commissioned, further investment could be unlocked.

In some ways the challenge is akin to that facing the cyber insurance market. Not only is there a lack of historical data on standby; even if there was, it would be of questionable value, due to the fast-changing nature of the underlying risks.

The prize is big, in terms of enabling this sector by underwriting its growth. The renewables sector is booming and likely to continue to boom, driven by social, political and economic tailwinds. Billions of dollars of fresh renewable energy projects are getting underway.

An existential threat of climate change is driving almost every conceivable stakeholder. Governments and regulators are doing what they can to incentivise growth in the sector. Investors are incentivised through ESG strategy and green investment trends. Gen Z will want to work with the world-saving projects of tomorrow. Even the dirty fossil fuel-based oil, gas and extractive industries are transitioning or broadening their business towards cleaner energy,

The large open spaces needed for wind turbines and solar farms are exposed to risks that the insurance industry already understands well. The wide, open plains of Texas are talked about as ideal for solar farms. Unfortunately, they will almost inevitably be pelted by hailstones. Likewise, the North Sea is already heavily populated with wind farms. The North Sea is notorious for its stormy weather and crashing waves.

Then there’s the problem of how to get energy from where it’s generated to where it’s needed. That is a supply chain and logistical risk challenge for the industries involved, but also a contingent business interruption (CBI) opportunity for the insurance sector.

What’s also needed in this emerging risk sector is the continued development of industry standards, as well as appropriate guard rails from legislators and regulators. Wordings will be important. New clauses, for instance around safe conditions for battery storage, might be critical to future claims, while further instilling the need for careful risk management processes.

What we don’t want are too many exclusions, that could stymie the role of insurance as a source of sustainable development in underwriting emerging risks and developing technology. Instead, the industry should focus on its use of data and analytics to provide more accurate pricing and attract capital to a significant growth opportunity for the specialty market. Insurance should not be a barrier to decarbonisation and energy transition towards net zero; it should be an enabler.