Renewable energy rates could moderate gains in 2022; insurers now able to find best-in-class assets

Insurance rates in the renewable energy segment could slow into a more stable low to mid-single-digit pace of growth in 2022 following a more harrowing upward adjustment over the past years, according to the latest research by  Willis Towers Watson.

"The general sentiment in the market is that, when excluding Nat Cat rate and capacity considerations, it’s reasonable for buyers to expect low-to-mid-single-digit rate increases for 2022," section author Steven Munday (pictured), WTW's global head of renewable energy & natural resources, wrote.

It's a fast-evolving market with a lot of moving pieces in a lot of different places, so exact measurements are few. Munday searches for his clues through a "complex, fragmented, dynamic and evolving" global market often split between specialist renewable departments; power and downstream market players; construction, marine and liability insurers and traditional upstream markets. But a turning point has taken shape through the fog.

"There is now a clear sense that the head of steam which has driven the last three years of pricing accelerations is now starting to run out," Munday wrote

Overall capacity remains quite strong and the promise of strong ESG credentials "could create a high level of competition in the market" capable of further slowing the pace of rate increases, WTW claimed. And new capacity continues to announce its presence through 2021 and into 2022.

But through its "painfully achieved" technical correction, the market has come considerably more sophisticated than just three years ago, Munday argues. Not every renewable asset is equally well poised to benefit from the taming of rates.

"If insurers have learned anything from the last three years, it is that not all clients are equal," Munday wrote. Insurers are going back into the fray with heightened technical knowledge heading towards much improved risk selection and continued evolution in structures.

Nat cat risks, the center of nearly all commercial insurance debates and risk wariness, will not go unnoticed in renewables pricing.  "For some buyers with assets in high-risk locations, the reality is that this could counteract the competitive downward market pressure for attractive risks this year," Munday wrote.

Winners in the coming pricing game should be renewable assets with an engaged risk management history, a limited loss record, low-cat geography and proven technology and contracting.

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