How US$1 billion in new mutual capacity has disrupted the renewable energy marketplace

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In 2023, the renewable energy market continues to gain steam, and project owners and developers are looking for the most effective ways to insure their investments. Spurred on by 22 consecutive quarters of commercial insurance pricing increases, more renewable energy companies are looking into the benefits of mutual insurance.

Two years ago, Marsh posed the question: Will 2021 be the year mutuals disrupt the renewable energy marketplace? Since then, mutual insurer investment in renewable energy offerings continues to grow, with added capacity and valuable services. As the clean energy industry prepares for a period of growth stimulated by the Inflation Reduction Act (IRA) in the US, energy security initiatives in Europe and emerging economies, and adoption of net zero emissions targets globally, now is a great opportunity to reflect on the advances in the mutual space.

Why a mutual partnership is worth exploring

Increases in commercial insurance pricing have continued to challenge insureds, stressing both budgets and risk management partnerships. However, those who took advantage of a mutual partnership saw less volatility and had access to twice the capacity of non-members. Based on multiple data sources, Marsh calculates that starting in 2021, companies operating in the energy and power sector that incorporated mutual insurance in their risk finance strategies had access to an additional US$1 billion in capacity. Membership in a mutual may provide energy and power companies with increased flexibility and certainty in their risk management plan, as well as some other advantages related to the unique aspects of a mutual, including:

No profit motive. Marsh analysis shows that energy and power mutual insurers issued more than US$3.6 billion in gross written premiums and returned more than US$1.1 billion in distributions to members in 2021 alone. In line with the mutual model, those distributions are dollars returned to members and may be reinvested by members into the energy transition. All industry mutuals maintained expense ratios under 10%, as opposed to the 27% carried by commercial P&C carriers.
Lower volatility. During this challenging market period, the mutual operational model has shown less volatility than the commercial model. Although mutuals are not immune to the drivers of the challenging market, they are typically positioned to more effectively manage it. For example, Marsh data shows that in the fourth quarter of 2021, mutual members experienced 20% to 30% premium rate increases on cyber insurance, while commercial cyber insurance pricing rose 130%. Even though cyber represents an extreme example, it is a strong demonstration of how mutual insurers can temper volatility.
Alignment with insureds (owners). Mutual insurers often look to their members to provide governance, oversight, and risk management advice, which gives them uniquely valuable insights into the risks of the industries they serve. However, mutuals may include both traditional and renewable energy companies, and therefore, members may not be aligned on the energy transition. Mutuals may face difficulties if they continue providing specialty products tailored to all their policyholders’ needs while their members’ interests move on divergent paths.
Value-added services and solutions. Mutuals’ contributions to clean energy risk management have expanded beyond added capacity.

Possible downsides

Although they provide options that can complement or replace traditional commercial insurance solutions, mutuals are unlikely to be the right fit for all renewable energy developers, investors, and owners. Integrating industry mutual and captive insurance solutions in risk finance strategies requires high engagement and risk management maturity that not all renewable energy professionals have invested in or achieved. To date, the power players in the renewable energy mutual space have pledged to expand their capabilities, but it is not clear whether this commitment can be sustained. It remains to be seen if mutuals will continue to evolve in parallel with the energy and power industry and, indeed, with their own individual memberships; each of which comprises representation of various sectors to different degrees and with different commitments to transition over time.

What the future may hold

The effect mutual insurance companies continues to have on the renewable energy insurance marketplace is tangible, and they remain well-positioned to challenge the offerings and business model of more traditional commercial insurers.

Mutuals are continually evaluating opportunities and working with brokers and members to address needs. Sharing many of the same customers, Marsh is working with mutuals to find solutions that lead the way. For instance, Marsh has established the Global Clean Energy Council to help clients navigate the coming changes, and the Energy & Power Mutual Center of Excellence to facilitate engagement with mutuals and align efforts to support our common clients. Most promising, is a Marsh feasibility study recently conducted for a new clean energy mutual that could provide capacity to global players in the energy transition. While still in early development, the feasibility study demonstrates a strong desire and preference toward mutuals as alternative risk finance option. Continued engagement between risk managers, brokers, and mutuals is the key to capitalizing on the positive momentum going forward.

As the energy transition continues, renewable energy project owners, developers, and investors should consider how mutual insurance could bolster their risk management strategy.

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This publication is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. The information contained herein is based on sources we believe reliable, but we make no representation or warranty as to its accuracy. Marsh shall have no obligation to update this publication and shall have no liability to you or any other party arising out of this publication or any matter contained herein. Any statements concerning actuarial, tax, accounting, or legal matters are based solely on our experience as insurance brokers and risk consultants and are not to be relied upon as actuarial, accounting, tax, or legal advice, for which you should consult your own professional advisors. Any modelling, analytics, or projections are subject to inherent uncertainty, and any analysis could be materially affected if any underlying assumptions, conditions, information, or factors are inaccurate or incomplete or should change. LCPA 23/283

How US$1 billion in new mutual capacity has disrupted the renewable energy marketplace

Why a mutual partnership is worth exploring

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