A different view on insurance

Twenty years in insurance – a career choice that often raises eyebrows. Yes, it can be dry, but it’s also a puzzle with immense potential and our passion lies at the intersection of insurance and renewable energy – a dynamic duo shaping our future.

What is the true purpose of insurance in today’s world? Beyond financial protection, how can it actively contribute to a greener, safer future? It’s clear that a fundamental shift in our approach to risk management is essential in order to achieve our ambitious sustainability goals.

To understand where we need to go, it’s crucial to look at where insurance came from.

Where Insurance came from

The original idea of insurance wasn't just about financial protection, it was about spreading risk and managing the unpredictable. Around 3000 BC, merchants in ancient civilizations like Babylonia and China faced the risk of losing their goods during perilous sea voyages. Hence, they would spread their cargo across several ships, ensuring that even if one sank, they wouldn't suffer a complete loss. In Medieval Europe, guilds emerged where members contributed to a pool of funds. This pool would then be used to support members who suffered financial hardship due to unforeseen events like fire or illness. In the 14th century, when ocean travel became more common, the need for protection against shipwrecks increased. This led to the development of marine insurance, where merchants paid premiums to share the risk of loss with others.

So, the core idea of insurance from its inception has been:

• Pooling resources: Individuals contribute small amounts to a larger pool, which is then used to compensate those who experience a significant loss.
• Risk mitigation: By sharing the burden, individuals are protected from catastrophic financial ruin caused by unpredictable events.
• Peace of mind: Knowing they have some level of financial security allows people to engage in activities and ventures that might otherwise be too risky.

While the specific types of risks covered have evolved over time, the fundamental principle of sharing risk and providing financial security remains the core purpose of insurance. What has fundamentally changed are the risks we want to cover. The initial idea of insurance was to protect against substantial, existential risks. Exposures we were not able to mitigate otherwise. This has fundamentally evolved over the centuries. Today we procure insurance to cover pretty much everything, or at least as much as possible. To have belt and braces. To make shareholders and financiers happy. For an easy sleep. Against attritional loss and damage. It is what interweaves the many industries that form capitalism together.

This includes the renewable energy sector, as said before a fast evolving industry with new, enhanced technologies and methodologies every day. The renewable energy insurance market has gone through a transition, graving for maturity that doesn’t seem to be achievable short or mid term. It hence has become a thread sometimes, adding significant cost to projects, for comparably low benefit as it seems. So what can we do to get the most for the money available for risk mitigation, targeting the most cost effective risk mitigation strategies that don’t inflate our Levelized Cost of Energy?

Less Insurance, More Power: Why Retention is the Key to Renewable Energy's Future

Solar panels glistening, wind turbines slicing the sky – renewable energy is the future, right? Hold on a sec, because while the tech rocks, the insurance world surrounding it's stuck in the Stone Age.

Forget the "break it, fix it" model. Renewable energy insurance needs a revolution. We need a system that incentivizes prevention, promotes innovation, and makes renewables truly bankable. Think "future-proofing" not "fingers crossed." In our opinions, the answer lies in retention. Here's why:

• Prevention Pays: Ditch the sky-high premiums for reactive coverage. Retention rewards proactive maintenance, like solar panel cleaning discounts or wind turbine health monitoring incentives. Less damage, lower costs, everyone wins!
• Shared Success: Insurance companies become risk partners, not just claim processors. Imagine collaborating on best practices and innovative tech to keep renewable projects humming.
• Stability Reigns: Forget the rollercoaster of fluctuating premiums. Retention plans offer predictable costs, remove the volatility allowing for better budgeting and long-term project planning.

Lightning strike your wind turbine? Boom, hefty payout. But wait, shouldn't we be encouraging, not penalizing, clean energy? Imagine this: Insurance that rewards proactive maintenance, offering discounts for advanced weather monitoring. This isn't just about saving money, it's about unlocking the full potential of renewables.

Renewable Energy projects face a significant challenge: insurance costs. These premiums often constitute the second-largest operational expense, putting immense strain on project margins and, in worst-case scenarios, jeopardizing the project entirely. ?

We’ve explored the potential of increasing retention levels – the amount a project absorbs before insurance kicks in – to a substantial amount, much higher than todays’ levels. Encouragingly, insurers have indicated a willingness to offer significant premium reductions in exchange for assuming less frequent, smaller claims.While this approach seems promising, industry-wide adoption is complex. Suppliers and contractors often prioritize lower deductibles, mirroring the preferences of lenders. To unlock the full potential of this strategy, collaborative efforts are essential. A unified approach to risk management, prioritizing prevention over reactive insurance, is the key to long-term success. “Risk before Insurance” says Marsh, and we believe it’s time to turn this so true vision into action.

Retention-based insurance makes clean energy not just sustainable, but unstoppable. It's time to switch gears, from reactive payouts to proactive protection. Let's power the future with less insurance, more resilience, and a whole lot of green.

Now that's a win-win for everyone: investors, insurers, and Mother Earth.

Agree?