How Renewable Energy Is Impacting Excess and Surplus Casualty Insurance

The global energy industry is in the middle of a once-in-a-generation transformation, as renewable production becomes more widespread and demand for clean energy increases alongside mainstream acceptance of electric vehicles (EVs).

According to the International Energy Agency,* the world is on track to add as much renewable power in the next five years as it did in the past 20, and growth in renewable power capacity is set to double by 2027. What's more, renewables could overtake coal as the world's primary source of electricity by early 2025.

Not surprisingly, these market forces are having a profound impact on Casualty insurers that handle the Energy industry.

"There is more capacity out there than we've seen in the oil and gas space in years," says Grant Bryant, senior vice president, Energy and Environmental at RPS. "And, to go along with that capacity, are the new insurance requirements of our clients."

The Energy market as a whole is unique in insurance because it's based on commodity prices — the price of oil, natural gas, etc. — that ebb and flow just as insurance markets do. Sometimes the Energy market and insurance market move in the same direction and sometimes opposite directions; right now, we're seeing rapid growth in both.

In particular, new regulations are on the horizon as part of the broader transition to renewables. This transition so far has included things such as operator's extra expense coverage, which applies to companies installing new renewable infrastructure to replace abandoned oil and gas wells. These facilities might have been abandoned decades ago, so local and state governments are heavily regulating the process to make them viable again, adding to new costs for clients.

"A lot of the policies that we're placing are on a combined form," Bryant explains, "with the General Liability for pollution and Professional coverage all wrapped up in a single package."

The transition to renewables is having a direct impact on Casualty coverages as well, effectively reducing the risk of bodily harm over time. A renewable energy site is similar to a traditional oil and gas site throughout the construction process, with all of the same risks. But, once brought online, renewable sites require less operational attention or maintenance than oil and gas. There's no pumping equipment, no meters to check, no materials that need tending by on-site staff.

As a result, these installations pose more of a Property risk than Casualty.

"A lot of this renewable work is government funded, with a lot of it even being foreign owned," Bryant explains. "So we're just not seeing a lot of opportunity in the renewable space. From an overall casualty standpoint, it doesn't pose as much of a risk because there aren't as many contractors on site once it's completed."

Learn more about what's next for the Casualty market in the RPS 2023 US Casualty Market Outlook.