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Will 2021 Be The Year Mutuals Disrupt the Renewable Energy Marketplace?

Posted by Michael Kolodner February 25, 2021

Accelerated growth in the renewable energy industry together with elevated commercial insurance rates are driving developers, investors, and owners to reevaluate historical risk management partnerships and strategies as they compete for resources and the ability to differentiate themselves and their projects.

Mutual insurers, already a popular choice among established thermal power generators, are now investing in expanded renewable energy offerings. This indicates that the maturing renewable energy industry is actively diversifying risk capital sources and advisory services, as scale and volume become sufficient to support mutualized portfolios.

Is a Mutual Partnership Worth Exploring?

Generally, renewable energy developers, investors, and owners are less familiar with mutual insurance options. As they contemplate incorporating a mutual insurer within an existing risk finance strategy, they should consider the following:

  1. No profit motive. Mutual insurers aim to efficiently underwrite risks at cost, not for a profit and their expense ratios are often lower than their commercial peers. In cases where underwriting performance is favorable, mutual insurers are often able to expand their products and services, or simply distribute any excess surplus back to insureds.
  2. Lower volatility. The operational stability inherent in mutual insurers means they often lag the market when it comes to cost fluctuations, which may be particularly attractive when markets start to firm. When the owner is also the insured, as opposed to an investor, a longer underwriting and investment time horizon may translate into more stable pricing, terms, and conditions over the lifecycle of a project.  
  3. Alignment with insureds (owners). Mutual insurers often leverage their members to provide governance, oversight, and risk management advice, giving them uniquely valuable insights into the risks of the industries they serve. When insurers don’t have a readymade solution for a specific need, this level of engagement often incentivizes mutual management teams to develop specialty products to support these needs.
  4. Value-added services and solutions. Mutuals’ ability to aggregate industry-specific risks, strategies, and people, creates opportunities to support investments in economic cost of risk reduction for their members and owners. Membership in mutual insurers often brings real competitive advantages through focused loss control initiatives, specialized claims professionals, captive management support services, and direct access to the data and analysis.

What is the Downside?

While certainly capable of providing proven options to complement or compete with traditional commercial insurance solutions, mutuals are unlikely to be the right fit for all.

With less sensitivity to profit and longer time horizons, some mutuals may find it challenging to keep up with the complex and often divergent needs of an energy industry segment that continues to grow and diversify. Historically, the very attributes that make mutuals most appealing in challenging markets, often prove to be their Achilles’ heel in times of rapid change. Therefore, it is uncertain how successful they will be at not merely navigating, but accelerating the global energy transition.

As the renewable industry matures, mutuals hope to play a more substantive role in risk management strategy. They are already proving effective for risk aggregators seeking to improve their margins at scale, and they are enhancing the overall competitiveness and stability of the marketplace.

Related to:  Energy

Michael Kolodner