When seeking insurance on renewable energy risks there are specific factors to consider, writes Chris Nivison, Renewable Energy Specialist at Willis Towers Watson, South Africa.
Developers, project owners, investors and lenders are exposed to a wide range of insurable risks, which may: impact the asset base; interrupt the revenue stream; affect repayments to lenders and investors; result in third party liability claims; relate to lack of required resource; or result in professional negligence claims.
Note that renewable energy and unproven technologies without accreditation can prove difficult to insure and early engagement with insurers/ reinsurers is of vital importance. Effective risk identification, loss mitigation, and robust risk management is a fundamental prerequisite and facilitator of financially viable projects. The selection of EPC and O&M contractors with proven track records is advisable. The security of insurers is paramount and credit ratings need to be aligned with lenders’ requirements.
The key to satisfying project lenders’ requirements is to have a composite and seamless Owner/Principal Controlled Insurance Programme (OCIP/PCIP) covering all project phases. In addition to Construction All Risks insurance (including Advance Loss of Profits), the OCIP/ PCIP includes Marine/Inland Transit insurance (including Delay in Start-Up), Operations All Risks insurance for the first year of operations (including Business Interruption), and Third Party Liability insurance for both the construction and operational phases of the project.
The major benefits of a composite and seamless OCIP/PCIP are as follows:
- Total control by the Owner/Principal is often essential to ensure material compliance with lenders’ requirements;
- A single focus for the purchase of insurance ensures that full protection is in place and disputes between parties and their respective insurers are avoided;
- Centralised risk management and loss control is generally more effective;
- Overall claims control and coordination facilitates settlements;
- Overall insurance cost savings generally occur;
- All parties are provided with the required level of comfort and protection;
- Grey areas between the various phases are avoided by eliminating gaps and/or duplication in coverage; and
- Securing DSU/ALOP insurance generally required by Lenders is assured whereas securing coverage in isolation can be problematic. ESI
www.willistowerswatson.com | chris.nivison@willistower