Sometimes, a few isolated events start to turn into a trend. Over the past decade, we have had the occasional year of high extreme weather losses – and the insurance markets have, unfailingly, berated themselves for not seeing it coming.
This time it’s a bit different, though. Last year’s record-breaking extreme weather losses, the fourth-highest Nat Cat losses of all time, follow in the wake of a devastating 2017, which was the second-costliest year of all time.
A trend is developing, and we need to adjust our expectations of risk to match that. Losses are starting to occur out of expected seasons for everything from hurricanes and tornadoes to wildfires. Indeed, the very concept of a Californian wildfire ‘season’ has been brought into question, with suggestions that fires are now a year-round risk.
As ever, our role is to adapt to the changing face of risk. The industry needs to come together to avoid too much reliance on past metrics that are rapidly losing their accuracy, whether that is a well-defined season or an exact ‘risk zone’.
The need to adjust risk ‘benchmarks’ extends to a wide variety of risks across renewable energy. At our Advisory Council this March – our 15th – insurers, asset owners and investors discussed how there is a new ‘normal’ risk in renewable energy, brought on by increased competition and resulting tighter build schedules.
The result of this is more manufacturing failures as project owners opt for cheaper components, more damage from hard-pressed construction firms, and more errors arising from uncertified designs. Meanwhile, OEMs are offering less comprehensive and long-lasting warranties as they seek to protect their margins.
On the face of it, this could be a blow to the insurance sector, a market founded upon offering asset owners confidence – no matter the complexity of risk faced.
In reality, it is an encouraging sign to us that the renewable energy industry is doing well. A flurry of M&A activity may mean, on the one hand, that asset owners are at risk of purchasing projects with unknown, worrying, histories of failure. On the other hand, it also means that big players are interested in the market.
This is a theme across the globe. We recently joined a Lloyd’s consortium with China Re to support Chinese offshore wind projects. While the Chinese market will certainly present new risks, we’re excited to be part of a movement into a new region, working with developers and investors to give renewables investors the confidence they need in a thriving international market.
Now, as insurers, asset owners and investors, we need to come together to examine new risks and safeguard the growth of our industry. For GCube, it’s been a good ten years of protecting renewables; we look forward to many more.
In this newsletter, we present our findings on changing risks in extreme weather and more widely. We also interview Chief Underwriting Officer Stuart Burchell on the highlights of February’s Onshore Wind Risk Seminar and present our review of the key discussions from our March Advisory Council.
Looking ahead, with ‘conference season’ upon us, there will be plenty of opportunities to meet the team – so if you don’t yet have meetings scheduled at WindEurope and RIMS this month, we encourage you to get in touch.
It’s been a busy start to the year; I look forward to unravelling the challenges and opportunities being faced by the market with you all over the coming months.
Enjoy the edition.
CEO, GCube Insurance