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Broad policy terms starving renewables market of profit: GCube

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Broad terms and conditions on offer in the renewable energy market, as well as new entrants from the oil and gas sector, are starving the business line of profitability, according to a report from GCube.

In its Uncharted Waters report, the renewables insurer said that the scale of technological change was making the offshore wind sector a “high-risk, high-cost industry which threatens to shackle its pioneering future with unsustainable risk and insurance”.

“Broad terms and conditions offered by the conventional insurance market and new oil and gas entrants have exacerbated soft market conditions and exposed insurers to continued losses, starving the sector of profitability,” the report said.

The comments come amid a huge growth of prominence of renewables within the insurance industry, with the Glasgow COP26 summit placing sustainability high up the industry agenda.

Multiple insurers have pledged to reduce their underwriting of fossil fuels and are implementing plans to hit net zero.

GCube said that combined market losses in offshore wind had quadrupled in the last five years, rising from £124mn between 2010-2015 to £500mn by 2020.

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The cost of the average claim nearly doubled from £1.67mn in 2010-2015 to £3.08mn in 2016-2020.

“To ensure sustainable growth in the years leading to 2050, the offshore wind industry, and its insurance partners, need to get their house back in order,” the report said.

GCube noted that contractor error and component defects represented 55% of all claims in the past 10 years, and 83% of the total claims spend.

A total of 44% of cable claims spend can be attributed to contractor error in cable laying and cable damage during transit, it said.

Subsea cables are behind the most frequent and most expensive losses, in the past 10 years, representing 30% of claims and 73% of total claims spend.

The insurer said that cost competitiveness had driven down component and contractor quality, which was impacting claims.

“The desire and haste to become cost-competitive with fossil fuels has generated a demonstrable lapse in the quality of components, and is putting contractors under pressure in offshore wind as operators seek to cut supply and maintenance costs,” the report said.

GCube suggested it could be necessary to increase disclosure from policyholders in order to price risks.

“Requiring insureds to disclose quality records for their chosen suppliers and contractors may be necessary to ascertain appropriate insurance terms in response to levels of risk of sub-quality suppliers,” the report said.

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