Power companies across the globe have been urged to ensure they keep their discipline over risk management systems as the COVID pandemic creates new problems for firms.
Speaking as the broker launched its Power Market Review, Graham Knight, Head of Global Natural Resources, Willis Towers Watson said now more then ever power companies needed to work with their brokers and insurers to mitigate the challenges they face.
“As the power generation sector and its insurance partners adjust to conducting business during the COVID-19 pandemic, all parties must remain disciplined in assessing and managing risks,” he explained. “Risks that are magnified by the pandemic, including the availability of plant and vendor support personnel and any disruption to operation and maintenance tasks, should be managed with the joint goal of ensuring plant reliability. At a time where plant resources might be limited, open and transparent communications with their insurance risk consultants should leveraged to the benefit of all.”
The brokers market review warned pressures on workforce availability and maintaining supply chains arising from COVID-19 are proving challenging to the power sector. Additionally, the increasing focus on Environmental Social Governance (ESG) is also having a significant impact on future power sector risk management strategies.
The report said the COVID-19 pandemic “presents some unique risks to the power sector that must be managed effectively to maintain reliable supply”. The report highlights key risks such as reduced electrical demands, moratoriums on construction projects, availability of personnel and travel restrictions which are impacting access to operating assets for maintenance. However, we have seen that some clients have actually taken advantage of the decrease in electricity demand and lower pricing to proactively advance scheduled maintenance operations forward, contrary to insurer expectations.
“The increasing significance of ESG and the changing climate risk landscape forms a key theme of the report, which highlights that the transition to a low carbon economy requires a fundamental reappraisal of risk in the power sector,” said the broker. “The Review shows that achieving a satisfactory ESG rating will be critical in enabling power companies to attract and maintain the support of key stakeholders in the future.”
Other key highlights of the report from an insurance market perspective were:
- Capacity: Global capacity for Power business has reduced in two different ways; firstly, some insurers have withdrawn from the sector entirely and secondly, we have seen a reduction in the capacity that the remaining insurers are agreeing to deploy. Now in 2020, the total global capacity is approximately US$3 billion, with a realistic capacity figure of approximately US$1.5 billion.
- Losses: with average global annual losses being approximately US$2.5 billion, the Review concludes that the global premium for the Power sector has been below the average annual loss amount for some time.
- Rating levels: In Q2 2020 most programmes saw rating increases of between 15-20%. At the time of writing, this has stayed relatively stable on a risk rating basis based on occupancy. The COVID-19 global pandemic has led to the global marketplace operating at a very uncertain time which has led to some hitherto unforeseen challenges and variances in offers.