MELBOURNE, June 30, 2021 – Power companies are facing key challenges arising from energy transition and the move to cleaner fossil fuels, according to Willis Towers Watson’s (NASDAQ: WLTW) 2021 Power Market Review. These include how power companies need to substantially reduce their greenhouse gas (GHG), emissions (referred to as climate change mitigation) as well as ensuring the resilience of their assets and operations to the impacts of climate change (referred to as climate change adaptation).
The review highlights how the industry is embracing the need to meet climate change requirements but also looks at how climate change is presenting unique risks to the sector that must be managed effectively to maintain reliable supply. Additionally, the review also explores how geopolitical power from energy transition will derive from:
Other key highlights of the review from an insurance market perspective include:
Matthew Frost, Head of Natural Resources Australasia, WTW said: “In the past 24 months there has been a directional change by insurers with a move to a ‘carrot’ approach to climate change rather than the ‘stick’. The headlines revolved around what insurers and reinsurers wouldn’t underwrite or when they would withdraw from areas such as thermal coal or oil sands. Now the mood is more proactive with talk about companies being incentivised to get to their stated climate change goals. WTW’s Climate Transition Pathways process supports this positive mood by arranging for the independent accreditation of an organisation’s climate change strategy which, in future, may be the vital key to unlock insurance capacity and terms in the climate risk space.”
Matthew added: “Overall, the insurance capacity in Australasia is shrinking in the Power sector. While the rate of hardening has now decreased for most lines of business from last year’s percentage rises, the pressure to keep pushing for year-on-year increases shows little sign of abating. It is important for Power companies to work closely with their risk advisors, using risk and analytics tools to help them manage their cost of risk through purchasing the right limits and retention levels for their insurance programs. But it is imperative that buyers and their brokers deliver clarity, transparency, and a renewed engagement with their leading insurers. Only then will they minimise the impact of this challenging market.”
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