Insurance and the push to Net Zero: upskilling in Renewable Energy for a greener future

‘Global heating is affecting every region on Earth, with many of the changes becoming irreversible. The only way to prevent exceeding this threshold is by urgently stepping up our efforts and pursuing the most ambitious path. We must act decisively now to keep 1.5 alive.’

António Guterres, UN Secretary-General, in his statement on the science behind the IPCC’s most recent Assessment Report on Climate Change (2021).

As the UN’s COP 29 Climate Conference this month agreed a tripling of the finance for developing countries, particularly in the global south where the greatest effects of climate change are felt, the necessity to restrict global warming to 1.5˚C is now pressing. Meeting the target deadline of 2030 to achieve this, or at most 2˚C, imperative.

Acknowledging that to meet this target, the transition from fossil fuels to clean energy must become a priority in the UK, King Charles recently announced the new government’s creation of a national power company, Great British Energy, focused on delivering green energy to the UK. Alongside this is the Skills England Bill, which aims to bring education providers and businesses together to address skills shortages, particularly in STEM (science, technology, engineering and maths) subjects.

For underwriters of Renewable Energy classes, these announcements will be welcome, as this investment in infrastructure and skills ought to scale the industry much faster - and will also benefit the private sector which the insurance industry supports.

Upskilling the Insurance sector

According to Chaucer’s Head of Risk Engineering Athith Gnanendran and Renewable Risk Engineer Richard Henderson, the insurance market for green energy also needs to be reshaped in order to support investors and innovators in broadening the scope and production of the many segments of Renewable Energy - wind, solar, hydropower, biofuels and utility-scale battery storage among others - at the rate that is desperately needed. To enable this, their view is that an improvement in the quality of risk management, underwriting and claims handling for renewable energy risk is best achieved through the recruitment of skilled and experienced energy sector workers into insurance.

Skills and capabilities to match renewable energy upscaling

In response to the most recent IPCC Assessment Report on climate change, the International Renewable Energy Agency last year outlined three pillars to address the current barriers to progress and signpost the way forwards in global clean energy, in its World Transitions Outlook:

1. Building the necessary infrastructure and investing at scale in grids, and both land and sea routes, to accommodate new production locations, trade patterns and demand centres;
2. Advancing an evolved policy and regulatory architecture that can facilitate targeted investments;
3. Strategically realigning institutional capacities to help ensure that skills and capabilities match the energy system we aspire to create.

As a recognised leader in the Energy class, Chaucer considers this final point to be particularly pertinent, as a mature and expert insurance marketplace is needed to provide industry customers with the best opportunity to grow at pace.

For Chaucer engineers, there are several interconnected shortages at play which need to be addressed to support a green energy future and create a robust insurance class capable of sustaining it:

• A shortage of skills in the green energy sector itself – a lack of both engineers and experienced management in this field make it difficult to scale renewable projects currently
• A shortage of experienced and skilled engineering risk management professionals within the insurance sector, able to provide industry knowledge to underwriters and claims professionals
• A shortage of direct Renewable Energy sector experience within the wider underwriting community, potentially leaving brokers with a limited panel of leading underwriters, which could restrict confidence in expansion long term

Whilst it may appear counter-intuitive for a leading underwriter to be calling for more competition, Chaucer feels that an upskilling of insurance professionals and the embedding of Renewable Energy professionals at a broader range of insurance companies (and indeed brokerages), will lead to a more robust, data-driven market.

If development of the renewable energy sector in the UK has perhaps been slow for various political and economic reasons, now that the drive to change it is at the forefront of government policy, fixing the problem still may not be as simple as opening a new publicly owned company and creating jobs and creating a supercharged Renewable Energy insurance sector will enable development.

Maturity and experience enhancing the Risk Management sector

One of the key issues facing the energy sector itself is an ageing workforce, and insufficient movement into it at a junior level. To put this shortage into context, 20% of the engineering workforce in the UK are due to retire by 2026. Whilst this shortfall will hopefully be addressed by the government’s new plans, one option for those would-be-retirees looking for a less physically demanding job or seeking a new challenge, could be to move into insurance, providing much-needed expertise in risk analysis.

This is exactly what Richard Henderson has done. Prior to joining insurance, he spent 29 years as an electrical engineer, working on gas-fired power stations, LNG refineries in Qatar and an offshore windfarm in the North Sea. In 2014, he took it upon himself to upskill by taking a Postgraduate Diploma in Offshore Renewables alongside his job in Qatar. At that time there were few institutions offering courses in renewable engineering, but fortunately Richard was able to study part time at his Alma Mater, The Robert Gordon University in Aberdeen.

Although many more universities across the country are now offering renewable engineering studies, degree courses are typically 3-4 years long and practical training can take over 5 years before engineers have gained the necessary experience. The pipeline from entry-level to experienced then is relatively long. Conversion courses such as the one Richard took could prove invaluable for skilled natural resources workers moving into the renewable energy sector.

A young sector requiring agility and growth

From an insurance perspective, in addition to adding sector expertise like Richard’s to the risk management pool, there is also, Athith and Richard argue, room to improve within the analytical capabilities of the market because the sector is so young and so fast evolving.

Due to the speed of advancement in renewables technology, loss data and asset data can show trends for only a relatively short period of time, and construction codes are constantly evolving. In offshore wind energy generation for example, turbine sizes have grown through several iterations from 0.5 - 1 megawatts output up to 22 megawatts, in just twenty years. This can create challenges for underwriting which would be much improved by soft narrative garnered from subject matter experts. Chaucer sees a holistic approach to risk in this industry as critical, with lived experience and deep knowledge of the environment and mechanics of the equipment, as vital to continued success of the market.

Insurance expertise to meet regulatory demand

Regulatory and Government policy changes adapting quickly to keep up can also put pressure on the capabilities of companies as subsidies change. Insurers need to navigate this regulatory uncertainty carefully, especially when providing coverage for business interruption losses etc. Regardless of location, renewable energy projects must always comply with varying local, national and international regulations, which can complicate underwriting and claims processes. Keeping up with this compliance requirement creates an increased burden of administration and risk management for both producers and insurers.

The next issue with this young sector is that, as each production company tends to work in isolation, they each know what their design flaws are and feed that back into their future production, but they do not necessarily see the problems with competitor’s products and processes, which could otherwise inform design.

Insurers, however, working across the globe with multiple clients at differing stages of development and in different geographies have a more holistic view of loss trends. With skilled and experienced engineers on board at insurance companies and greater collaboration, insurers would be able to create a feedback loop which allows them to review losses with more clarity of detail and underwrite in a more targeted manner, which can in turn inform risk management and design within the whole sector.

Conclusions – Greater collaboration required

In summary, Chaucer’s view is that direct engineering expertise is integral to underwriting quality in such a young sector. It supports growth of the market due to greater security and potential reduction in losses for clients. The importance of this to increase knowledge within the market to provide more suitable solutions for clients, is critical. Chaucer advocates for utilising skilled and experienced people who have had direct involvement in the renewables sector, who will recognise best practice and be able to spot weaknesses to inform underwriting decisions.

As the range of quoting markets for Renewable Energy is still nascent, much of the follow-line capacity currently in the market relies on leading underwriter’s capabilities. With specialist expertise within Renewable Energy teams, more insurers may be encouraged to improve their claims capabilities and take informed leading positions, which in turn allows leading markets such as Chaucer to collaborate – and be challenged.

Greater collaboration is needed within the energy sector and insurance industry to share knowledge of claims trends and design flaws, enabling consistent risk management and design improvement feedback.

Ultimately, growth of renewable energy engineering skills within the insurance market would enhance capabilities across the sector, enable more insurance companies to take informed leading roles, provide more capacity for a booming sector - and enable the sustainability of the sector long term.