Insurance Premiums for Offshore Wind Set to Keep Falling – NARDAC

NARDAC, the specialist energy and infrastructure insurance broker and Managing General Agent (MGA), has reported that, according to its recent research into London market capacity, insurance premiums for offshore renewable energy and infrastructure projects are set to remain low for the next two to three years, prolonging the ‘soft market’ that began to emerge across several insurance lines in 2023. 

Yet claims for the sector continue to occur[1] - most notably for cable damage.  Additionally, with inflationary pressures having steadily increased in recent years, the cost of repairs or replacement parts has also risen, leading to the cost of claims to insurers also increasing.

From its research, however, NARDAC found that despite the high frequency and growing severity of claims, neither have yet had a significant bearing on market capacity. Moreover, rates and deductibles have not risen in line with increased sums insured, and insurers’ costs. 

NARDAC sought appetite and capacity information from 18 major insurers in the London market, asking them to share the amount of underwriting capital offered for offshore technologies and which offshore assets they would support – ranging from interconnectors, grid connections, fixed and floating offshore wind, to wave and tidal projects.

Data secured by NARDAC shows that amongst underwriters, mean capacity available per project stands at $164m, while modal average stands at $200m, suggesting underwriters within the market are willing to insure significant portions of project risk.  Similarly, the line sizes that lead insurers are willing to write remains substantial – ranging from 12.5% to 20%, with a modal line of 15%.  Taken together, the data suggests that London markets have considerable capital to deploy in supporting projects.

Equally, 94% of all insurers surveyed would offer capacity to interconnector projects and fixed offshore wind projects, while 89% of insurers would offer capacity for grid connection developments and 84% would be willing to support floating offshore wind projects.  Wave and tidal energy projects, conversely, saw only 56% support.

Critically, however, with a slowdown forecast in offshore wind project development up to 2027[2], insurance capacity is over supplied to the market, keeping premiums low and extending soft market conditions.

While anonymised by underwriter, approximately 33% of the London market offshore capacity surveyed is made up of ‘new’ insurers from traditional energy underwriters looking for opportunities outside declining oil and gas, or making commitments to supporting the energy transition.  

“Offshore wind has been softening for over a year now,” said Rob Bates, Partner, NARDAC, who led the research.  “Our data indicates that with the slowdown in offshore wind projects globally, and huge underwriter interest, London underwriting capacity has been forced into competing on price – and on coverage too – to secure lines on placements. This trend is set to continue and perhaps even accelerate in the coming months.”

“Insurance buyers and intermediaries should note, however, that this situation is not sustainable.  In the short term, when claims come in - and it is ‘when’, not ‘if’ - insurers will respond through tougher terms and conditions, so that any developers hit by multiple claims can expect to have to carry higher deductibles and pricing in future.  Insurance is very reactive, and longer term, we anticipate a market correction as project build-out for European projects ramps up towards the end of the decade, tightening the supply of underwriting capital.”

NARDAC | https://nardac.com

[1] https://commercial.allianz.com/news-and-insights/news/offshore-wind-opportunities-risks-press.html

[2] https://gwec.net/wp-content/uploads/2023/08/GWEC-Global-Offshore-Wind-Report-2023.pdf