GCube CEO calls on renewable insurers to maintain underwriting discipline

By Rebecca Delaney

July 7 - (The Insurer) - London market insurers must remain disciplined in underwriting newer renewable technologies like battery storage to avoid a retreat of capacity similar to that seen in onshore wind 30 years ago, GCube CEO Fraser McLachlan said on Thursday.

Speaking during a fireside chat at the Energy Insurance London conference, McLachlan underlined grid stability and cost of power as key considerations in conversations around the transition to a lower-carbon energy mix.

“There's got to be a degree of realism in all this,” said McLachlan.

“If we do want to see some of these newer technologies and newer projects emerge, then it is really going to be about how much it costs to produce electricity, and how much a consumer is prepared to pay at the end of the day for all that power generation.”

He added that insurers need to find the balance between supporting nascent technologies while not being on the hook for technology performance failures.

“I'm a great believer in supporting the industry as it transitions itself into new technologies. I'm not a great believer in the insurance industry being here to pay for other people's R&D,” said McLachlan.

“We are here as an industry in order to insure the unforeseen event that you thought was outside of your control. I don't believe that this market or the insurance industry should be here to cover … the guarantees of the performance or the efficacy of manufacturers' equipment.”

He added that the industry should take care to avoid repeating the experience of the onshore wind market in the 1990s, when an influx of capacity into the London market led to significant rate reductions and broadened terms and conditions, ultimately prompting carriers to withdraw from the market.

“My fear is that with the amount of capacity that there is in the renewable energy market right now, that we're going to see repeat what we saw in the nineties, which was loads of people piling in and then certain markets catching a cold and running away again,” said McLachlan.

“I'm very, very passionate about trying to stop that happening again. At the moment, with the amount of capacity that there is in the renewable energy space, I think there has to be a lot more discipline in the marketplace in that space.”

INSURERS ANSWERED ‘BAT SIGNAL’ FOR CARBON CAPTURE

Also speaking at the event, Susan Swails, carbon capture, utilisation and storage (CCUS) lead in Aon’s natural resources team, highlighted the segment as an area where the insurance market has successfully engaged with nascent technologies.

“The Department for Energy Security and Net Zero (DESNZ) basically sent out a bat signal three years ago, asking the Lloyd's insurance community for help,” said Swails.

“There was a lukewarm welcome in the beginning. But after a little while, especially from the joint natural resource committee, there was enthusiasm to try and help. This market has a reputation for innovation, and over the last two and a half years, it's done exactly that.”

She continued that the UK is generally considered to be leading the way in CCUS development through DESNZ, the Offshore Petroleum Regulator for Environment and Decommissioning, Ofgem and the North Sea Transition Authority.

This sovereign-supported system is dependent on reaching financial viability, with the insurance sector teed up to foster this in the absence of global carbon pricing.

“The value that insurance brings to that landscape is enormous. We talk about that in every energy risk since time began as banks won't finance without insurance,” said Swails.

“The upstream energy skillset from an insurance perspective lends itself to CCS. Insurance and the technical experts in our business are brilliant at qualifying and quantifying risk, identifying where the exposures are, what they might be worth, and how much insurance is reasonable, through the entire lifecycle of any risk. Carbon capture is no different in that respect.”