When I first was introduced to the world of Offshore Wind, the general turbine had an output of around 3 MWs and there was some excitement surrounding the latest turbine that was going into factory production, which had an output slightly greater than 5 MW - this was a mere fifteen years ago! Today we are seeing the start of the Dogger Bank project, with turbines having an output of 13 MW and whole total project having an output capacity of 3.6 GW, with all the modern infrastructure to manage this. These numbers are simply staggering and represent a massive and impressive engineering evolution - in a very short period of time. Where will the improvements stop? What size can a turbine/transformer/cable be? What different methods of construction will be needed? What size vessels? I have asked these questions on several occasions over the years, but time has invariably proved the answer wrong.
From an insurer view these changes can present challenges; historically, the industry has only provided limited coverage for prototypical projects and this is accepted by the wind industry. However, an insurer’s nerves can be further unsettled when a turbine enters the first phases of production and construction; this is not only limited to changes in the output of the turbine but any major component of the turbine, for example foundation varieties (floating).
Cable laying also needs a special mention; it is by no means an easy task for the contractor, but it is the major contributor to insured losses in the construction phase of a project. The projection of this trend does not seem to show any short-term improvement and is an area that needs urgent attention from the industry. The Marine Warranty Surveyor (MWS) is the only protection for the Owner and insurer alike for these circumstances; in too many instances, the MWS is undervalued or worse, disregarded. There is room for improvement here from the contractor quarters. Currently the insurance market is in a “hard market” that has been brought on by several elements but has mainly been driven by a continued overly competitive environment that could not sustain itself in certain areas of the industry, one of them among many being the Offshore Wind sector. So where does this leave the reliance on insurance in the sector, and how can Offshore Wind farm owners obtain more equitable terms and conditions?
Insurance underwriters will evaluate the risk based on several factors. I have already mentioned the evolution of technology, but there many more: experience of contractors, policy coverage, sea depth, transformer technology, fire detection and prevention, cable depth and length, Marine Warranty Surveyor, foundation, supply chain logistics, geographic location etc., to name but a few. However, there is also a more intangible element; transparency is paramount to any underwriter’s decision process.
At Codan, we enjoy a close tri-partite relationship with most of our brokers and clients. This starts with the quality of the insurance tender document; the less we learn from it, the more insecurity we feel about the success of the project. This is then followed up by quality presentations to the underwriting fraternity from the owner and broker – but most important to us are the quick and accurate responses to the questions from underwriters and insurance engineers that attend the presentation. Slow or vague answers will be viewed as a red flag, with the underwriter taking a more conservative approach than may be warranted.
In general, we find the tender process professional; again, this is something that has gone through an evolutionary improvement in recent years. However, we now come to the most important issue regarding transparency – a claim. On some occasions, the insurance market still experiences elements of transparency being challenged in the event of a claim; but rest assured, by no means am I suggesting any dishonesty! This is usually because of contractual obligations to contractors or sub-contractors; it is unfortunate that this can quite often lead to frustration for both parties.
This should be a focus going forward; if a lead insurer is sufficiently skilled at what they do, the action will be proactive, if they can get involved before money has been spent and have an involvement in the repair/settlement, it creates more bankability for the project and a much faster claims handing process. This has the potential to reduce claims costs; of course, reducing claims costs will logically lead to lower premiums.
Another tool that gives more understanding to insurers are workshops, where all parties can offer qualified opinions/concerns and in turn gain technical insight into a project. Typical subjects for operational risks would include business continuity, spare parts and contingency planning, including all the “what if?” type questions.
From an insurance industry perspective, the next improvement would be one of data. Being relatively young, the Offshore Wind industry has presented a challenge to an insurance industry which relies heavily on data for pricing and risk evaluation; however, with maturity comes more empirical understanding. Codan has been notified with in excess of 1100 offshore wind claims; these can now be broken down by component, contractor, cause, location, vessel etc. In addition, there are claims patterns, for example average notification and settlement times, including movements in that period. It is not the insurer’s intention to utilize this data simply in the actual underwriting process but also to interact with the brokers and owners to assist in risk management and risk “heat mapping”.
The end result of this process should mean a more secure project for the owner and insurer/s and a growing understanding of the frequency and severity of losses as the years progress. Being involved in the Offshore Wind industry is a highlight of my insurance career, it’s an energetic, motivating area to work in and ever changing. To the industry – keep up the great work!
Brendan Reed is Nordic Director of Construction and Engineering and Renewable Energy, Codan Renewable Energy. bmr@codan.dk
