Traditional energy insurance products 'insufficient' for changing transition needs, says WTW

By Rebecca Delaney

March 14 - (The Insurer) - The natural resources sector is at a “tipping point” as firms seek to balance competing priorities, according to WTW, while carbon capture and battery systems are poised for growth in the medium to long term.

The broker's latest global clean energy survey identified several challenges currently facing the natural resources sector, including regulatory pressures to uphold climate-related commitments, financial pressures, operational pressures, competitive pressures to maintain and grow market share, and social pressures to accelerate the decarbonisation agenda.

Blanket exclusions and limited durations continue to be the main barriers to commercial insurability, the broker said.

While maintaining a stable energy supply and boosting return on investment were identified as the top key commercial priorities in the near term, almost two-thirds (63%) of respondents across all sectors (oil and gas, power, mining and metals, and renewables) said they view the transition as an opportunity for commercial growth.

Reflecting this optimism, the average spend on clean energy technologies and infrastructure is expected to increase by 34% on average in the next financial year, rising from an average of $185 million to $249 million.

However, supply chain disruption (79%) and geopolitical issues (78%) were cited as the greatest risks to companies’ clean energy strategies, which the broker said was indicative of concerns over trade tensions and potential changes to subsidies and regulations.

“With a record number of elections in 2024 and more changes in governments expected around the world in 2025, there's also less certainty around subsidy mechanisms and energy policies,” said David Bagnall, Willis's global head of sales and strategy for natural resources, at the survey’s launch in London on Wednesday.

“In some countries such as the U.S., we're seeing potential for a radical change of course, although it's still too soon to assess what the impact will be for clean energy plans in that region.”

Graham Knight, chairman of natural resources at Willis, further reflected on policy shifts in the U.S. that have made national headlines.

“We've all heard the rhetoric around 'drill, baby drill'. Maybe that will come to transpire, but I think the realities around that particular comment is that the economics don't actually support that right now. Look at the price of energy or the price of oil. Wall Street is driven by economics, not political rhetoric,” said Knight.

CHANGING TECHNOLOGY PRIORITIES

More than half (51%) of respondents rated solar as a top priority in the near and medium term, while in the medium to long term, 61% prioritised battery energy storage systems and carbon capture and storage.

However, organisations continue to face challenges in getting the right insurance, with more than half of respondents (53%) citing blanket exclusions as the most significant barrier.

“It is a fairly damning response by industry (that) their perceptions of the obstacles presented by the insurance industry were positioned as enablers of investment in this clean energy transition,” said Steven Munday, global head of renewables within Willis’s natural resources unit.

“If we look at blanket or excessive exclusions, half of all the industry respondents felt this was a challenge, so we see a clear opportunity for specialty advice for close working with underwriters with a deep and educated understanding of the true material technical risks.”

Blanket exclusions were followed by limited duration of insurance (48%) and the lack of suitable products (47%).

“Nearly half of all respondents for all industries felt that traditional products were not sufficient,” Munday added.

“As the market evolves, we expect to see more attention given and success with blending parametrics, traditional products, supporting new surety performance bonds, guarantee products, together with a focus on overlain risks associated with evolving technologies, supported by good engineering and underwriting understanding of these new evolving risks.”