In this chapter of our Annual Insurance Review 2021, we look at the main developments in 2020 and expected issues in 2021 for Energy.Key developments in 2020
In our last Annual Insurance Review we gave some indications of what to look out for in 2020. We hope we can be forgiven for not predicting a global pandemic, but our discussion around Insurers looking to renewable energy as an alternative source of premium income has also proved to be a major trend of the past year.
'Black April' saw oil prices turn negative: there was an imbalance between oversupplied oil and a significant fall in demand following the shutdown of major economies and travel routes under COVID-19 restrictions.
Demand for fossil fuels is now widely seen ashaving reached its peak. According to the International Energy Agency's (IEA) report published in early November, global renewable electricity installation will hit a record level in 2020. The report states that almost 90% of new electricity generation in 2020 will be renewable, with just 10% powered by gas and coal.
Alongside the move away from fossil fuels, the renewable energy insurance market has swiftly hardened in 2020. Capacity is now more restricted; Willis Towers Watson describes the 'balance of power' swinging from an Insured's to an Insurer's market, as rates have steadily increased and restrictions of cover have been introduced over the past year.
There have also been some notable strategic investments by Insurers in the renewables market. Tokio Marine HCC acquired GCube in March 2020. Chief Executive Barry Cook described this as underlining their "commitment to the renewable energy insurance market and [their] desire to actively address the issues around sustainability… and offer[s] opportunities for growth and diversification".
What to look out for in 2021
The central scenario in BP's annual report for 2020 shows demand for oil falling by 55% over the next 30 years. Renewable energy sources are likely to continue to fill the gap in 2021 and beyond.
There is a growing acceptance and drive for a 'green recovery' to COVID-19. Many governments are including such measures in their pandemic recovery policies in order to ensure the environmental health and resilience of societies. Preliminary OECD estimates suggest these measures amount to USD 312 billion.
However, according to the IEA’s Sustainable Development Scenario (SDS), renewable capacity needs to grow by over 300 GW average per year between now and 2030 in order to reach the goals of the Paris Agreement.
Therefore, increased investment in and development of renewable energy sources will be required to meet global energy needs sustainably. Technological developments in this area will result in new types of insurance risks and considerations.
For example, hybrid renewable projects that combine multiple forms of energy generation, storage or end use technologies are a potential solution. Lack of loss history in such new projects will present challenges to ascertaining likely insurance risk exposures.
Download our full Annual Insurance Review 2021 for more insights.