SINGAPORE, September 8, 2022 – Risk managers in the power sector must tackle an entirely new risk landscape brought about by the Russia-Ukraine conflict, global inflation, the energy transition, and climate change, according to the 2022 Power Market Review from WTW (NASDAQ: WTW).
As power insurance prices continue to rise, risk managers must juggle these risks while ensuring that they have determined current, correct, and sufficient asset and business interruption valuations against the backdrop of rampant global inflation, a challenge which some have not yet faced over the course of their careers.
The Review highlights these and other new challenges for the power sector, which range from the technological to the geopolitical. It considers:
Power Market Review also considers the current state of the insurance market for power risks. Data and commentary covers areas including:
Lyo Foo, Head of Power, Natural Resources Asia, WTW said: “In the first half of 2022, insurers continued to underwrite with caution, but the market is also showing a slightly greater appetite and easing restrictions for clean and good quality business. Stand-alone coal insurance placements continued to experience extreme challenges, with an increasing number of insurers restricted from participating in such placements, regardless of risk quality or loss history. As a result, larger retentions and further rate increases are expected to persist. Insurers are re-aligning underwriting in support of revised ESG policies, further reducing capacity, in some cases earlier than anticipated. With demand for capacity exceeding supply, rates are often considerably higher than expiring policies.
With large Asian economies experiencing a strong rise in electricity demand, the economic realities in Asia mean that a significant reduction of coal consumption will be more challenging than elsewhere. But with the realities of climate change placing new pressures on the insurance market, there is a critical need for power companies to keep up with the pace of insurers and accelerate their energy transition to ensure continuous insurance coverage.
The Climate Transition Pathway framework introduced by WTW will be the long-term solution for our Coal power clients. While we provide guidance to organisations planning their transition to a low-carbon economy, such accredited framework provides insurance companies and financial institutions a consistent approach to identifying business with robust low-carbon transition plans which is in-line with their ESG guidelines.”
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