Renewable energy will remain highly attractive in Asia if you can overcome the challenges by managing its risks and associated costs.
The sector has impressive potential. The International Renewable Energy Agency expects close to US$600 billion in annual direct investments into projects in Asia alone, representing half of all investments globally. Greater adoption of ESG objectives, decreasing oil and gas prices, and other challenges to traditional power generation further increase the attractiveness of renewables.
However, with opportunities come challenges:
Furthermore, the Asian insurance market for renewable energy is maturing with premiums that are three to four times higher than those in Europe two years ago, along with higher deductibles, lengthy placements, and concurrent terms compounding the complexity of the insurance process.
Marsh Specialty has reconsidered the conventional insurance-only approach to risk mitigation and created a new set of proprietary approaches that enable you to remove complexity, reduce costs, save time, and regain control over project and operational risks.
We deliver four approaches to clients before we buy insurance:
Risk engineering technically de-risks or lowers the actual risks of a project and improve the overall risk profile. Its benefits are self-evident and threefold: apart from lowering the risk of loss events in your project, you also lower the cost of insuring your risks and reduce your project’s lifecycle cost.
Examples of risk engineering include using longer monopoles to reduce the risk of soil liquefaction after an earthquake, or simply having spae cables near your project site.
This approach allows you to require lower insurance limits, significantly reducing your insurance costs by 30% – 40%!
EML and NatCat Modelling
By carrying out a detailed and comprehensive study of Estimated Maximum Losses, you can determine limits, costs, and availability to optimize your insurance program.
With heightened natural catastrophe risks in Asia compared to other regions, leverage rigorous probabilistic methodology to analyze and quantify your exposures to earthquakes, liquefaction, tsunamis, typhoons and storms.
Contractual Risk Allocation
If insurance is more expensive and less available, then risk should be fairly shared between all stakeholders, including contractors, and this is the aim of contractual risk allocation.
By identifying key pressure points between project contracts and project insurance, and by better allocating risk, we can reduce insurance costs by up to 30 during the construction phase, and by up to 15% during operations.
Insurance capacity, especially in NatCat-exposed regions like Asia, is very limited, and unlocking fresh capacity is essential to increasing short- and long-term insurability. Doing so will not put existing insurance markets in competition, but enables you to buy sufficient limits to cover your estimated maximum loss scenarios.
Why Marsh Specialty
The approaches above work alongside each other to reduce the total cost of risk and achieve well-balanced and sustainable risk mitigation.
Marsh Specialty’s Renewable Energy Practice has a dedicated team in Asia with the deep technical expertise, cost modeling skills and industry experience to perform effective risk engineering and contractual risk allocation that balance commercial outcomes, relationships with contractors, lenders’ requirements, and insurance terms. Our leading market position also enables us to unlock fresh capacity of US$500 million.