After enduring years of hard-market conditions, the (re)insurance property and business interruption market cycles are starting to turn according to the Power Market Review published today by WTW (NASDAQ: WTW), a leading global advisory, broking, and solutions company.
While lower-level attritional losses remain a constant in the power sector, the absence of larger losses in 2023 and 2024 is expected to lead to more competitive pricing in property and business interruption. The international liability market has also stabilised with a small uptick in capacity and softer market conditions, leading to greater competition and downward pressure on rates.
Key takeaways from the review include:
• Demands on the power sector are gathering momentum as global electrification grows exponentially. To keep up, the lifespans of power assets are being extended. Companies will need to provide (re)insurers with a maintenance strategy that includes clear modifications to accommodate for ageing assets.
• There is a growing appetite for greener portfolios in liability, but evolving technologies carry inherent risks: the distinction between proven vs. unproven technologies remains. An increasing reliance on intermittent, weather-dependent sources of power is demanding more flexible grids and optimisation of operating systems.
• Transmission system operators (TSOs) are being challenged by transition as the existing centralised and large-scale power grid shifts to a solar, wind, and hydroelectric heavy power grid. The potential for transmission bottlenecks is growing, with generation assets now located further from load centres and in new regions with limited transmission infrastructure.
• Placements containing coal and/or wildfire exposure continue to face greater scrutiny, as do those with significant US exposure. Thermal will continue to be at the core of the base load supply strategy for most countries.
Rupert Mackenzie, head of global natural resources, WTW, said: “Making strides in a softening market will demand renewed focus on getting valuations right, investing in risk engineering for ageing assets, and managing supply chain volatility through contingency plans. (Re)insurers will need to lean into power companies’ specialist knowledge of operations and technologies to really understand their risks and find solutions that are commercially reasonable. Power companies are encouraged to present their risks with transparency, to help (re)insurance markets understand the technologies and risk controls to right-size the cover. With the market approaching a new phase, the value of getting this approach right is essential to take full advantage of opportunities. The better the market understands the client’s business, the more accurate and flexible the solutions can be.”
The complete report can be downloaded here.