Renewable energy risk managers face choppy waters in 2023 – WTW

Renewable energy risk managers can expect to face a ‘new trilemma’ of challenges in 2023, as the world powers up its transition away from fossil fuels, warned Willis Tower Watson’s (WTW) Renewable Energy Market Review, published today (19 January 2023).

According to the review, these challenges comprise the convergence of:

1. Energy – energy security needs to be able to withstand system shocks, such as the Russia-Ukraine conflict, without current price volatility.
2. Money – firms need to know how to navigate unsettled global macroeconomics, including rising inflation, higher interest rates and banks tightening money supply.
3. Supply – firms need to learn how to respond to increased consumer and regulatory demand for sustainable energy, alongside squeezed supply inputs – such as increased costs of materials and labour.

Margaret-Ann Splawn, contributing author and executive director of the Climate Markets and Investment Association, said: “Macro events and trends such as inflation, cost increases, security and supply chains are impacting the renewable energy industry, making the current business environment a challenging one for risk managers.”

“Several important steps will help them to assess their own vulnerabilities in the transition to net zero and protect themselves from current and future [environmental, social and governance] (ESG) and climate-related risks.”

Splawn explained that risk managers should: 

• Understand their own ESG and sustainability position.
• Adopt a reactive, risk-response view.
• Play a strategic role across the company.
• Work in concert with relevant stakeholders.

‘Fight for market share’

WTW’s natural resources global renewable energy leader Steven Munday, meanwhile, said that “working with an intermediary who understands each insurer’s specific risk appetite will be critical” in terms of premiums, as he predicted that general insurance rate increases will be tempered by individual insurers’ appetites for specific types of clients and assets.

He further noted that, in all cases, premiums for natural catastrophe risks would be much higher in the coming year.

Munday said: “Buyers that fall within an insurer’s higher levels of risk appetite can expect low- to mid-single digit price increases.

“Transient clients might achieve similar rates if insurers new to renewables fight for market share, but more circumspect risk carriers are likely to offer them middle to high single digit increases.

“Finally, clients with challenging occupancies, poor claims experience, or a poor strategy may well see double-digit rate rises.”