The review highlights how the industry is embracing the need to meet climate change requirements but also looks at how climate change is presenting unique risks to the sector that must be managed effectively to maintain reliable supply. The review also explores how geopolitical power from energy transition will derive from:
- control of the “green earth” materials needed in the energy transition;
- availability of renewable sources for power production;
- ability to produce and export both power and new low carbon industrial fuels such as hydrogen;
- innovation of new technology, business models and industries and flexibility to the pace of transformation;
- the flexibility to the pace of transformation as this is likely to be non-linear in form
Other key highlights of the review from an insurance market perspective include:
- Capacity: In 2021, Willis Towers Watson estimates that the global theoretical total has now reduced still further to approximately US$3.25 billion, with the realistic level in the region of US$1.4 billion.
- Losses: Losses for 2020 are more extensive than 2019 with two major Power losses in 2021, totaling US$450 million between them. However, this is not as disastrous as during the period 2015-18.
- Rating levels: Rating increases are now averaging between 15-20% for Property programmes, depending on a variety of factors, including risk profile, premium income volume, spread of risk, loss record and, increasingly, ESG criteria. This represents a slight easing of the hard market but is still far removed from any actual turnaround in rating levels.
Graham Knight, Head of Global Natural Resources, Willis Towers Watson, said: “In these uncertain times, adapting to the new realities of the energy transition and the move to cleaner fossil fuels is critical for a sustainable future for the power sector. However, it is not a simple matter of an immediate and irreversible switch to renewable energy. It is essential that there remains room for the power sector to adapt and absorb new technologies such as hydrogen and biofuels, rather than face a wholesale abandonment by stakeholders for renewable sources of power such as Wind and Solar.”
He added: “Recent initiatives such as the Climate Transition Pathway accreditation process and the movement from coal to hydrogen are all helping the power sector and its insurance partners adjust to a move to cleaner and more sustainable environment. But it is imperative that buyers and their brokers deliver clarity, transparency, and a renewed engagement with their leading insurers. Only then will they minimise the impact of this challenging market.”