State of the Wind Turbine Insurance Market in the UK
Within the UK insurance market there is 4-5 key insurers when looking to arrange wind turbine insurance cover. The key insurers are RSA, HSB Engineering, Allianz, Aviva and Ace. There would appear to be a great appetite from these insurers to underwrite wind turbines in the UK. However outside these key insurers there seems little desire or understanding from the rest of the insurance market towards renewable energy/wind turbine insurance.
From the UK’s insurance industries perspective the underwriting of renewable energy and specifically wind turbines is very much still in its infancy. Insurers in the UK are having to rely on the knowledge and experience of their network of offices within Europe and globally. For example Royal & Sun Alliance (RSA) utilise the expertise of their subsidiary company in Denmark (Codan) who have been underwriting wind energy for over 20 years. This expertise is particularly imperative when insurers in the UK are presented with a new turbine manufacturer/new technology. Insurers across Europe can provide information regarding reliability and loss ratio’s for the UK market for most turbine manufacturers.
The general feeling is insurance premiums within the UK are low, a £250,000-£300,000 turbine can be insured for less than £1,000 per annum. This would cover Damage, Breakdown & Loss of Revenue. We are however seeing a slight change in the UK market as the market matures, insurers are scrutinising manufacturers in more detail with insurers no longer providing cover for certain manufacturers/models who have poor loss ratio’s as a consequence of poor/unreliable technology.
Key Insurance Covers
Before the wind turbine is installed/commissioned owners/operators of wind turbines should make sure that the installer/distributor is responsible for the turbine prior to operation of the turbine. Most notably they will need to determine who is responsible for the turbine/equipment whilst in transit, before installation and during construction/erection.
Should the turbine owner have to arrange their own cover prior to operation of the turbine cover can be arranged in the form a Marine/Transit policy and a Contractors All Risk policy (covers the turbine equipment whilst on site and during construction).
Following construction and commissioning of the turbine the owner/operator will be responsible for the operational insurance cover.
There are 5 key covers that owners and operators of wind turbines should look for –
Damage – Main perils being Storm, Fire, Lightning, Accidental Damage and Malicious Damage.
Breakdown Cover – Pays for Parts and Labour following Breakdown
Theft – In the main this is for cabling and smaller/ancillary parts to the turbine
Loss of Revenue – Protecting any loss of revenue following damage or breakdown
Public Liability – Protects against third party damage or third party injury e.g blade becomes detached and damages nearby property.
It is worth noting at this stage that many farm/rural insurers can add insurance cover for wind turbines onto existing farm policies. The cover is often very basic cover with only Damage being covered. This is often the case for micro turbines with many owners of turbines either not having any cover or very limited cover.
As stated previously the insurance market for wind turbines is still in its infancy, that said there are still many issues that insurers are having to deal with. I have looked at key issues below –
New technology/New turbine manufacturers
Over the last 12-24 months insurers have been presented with the problem of arranging cover for new turbine manufacturers with turbines who have no/very little operational history. Insurers are commonly declining the opportunity to underwrite new turbines with the arrangement of getting the right cover for turbine owners of these new turbines often difficult.
Insurers have previously provided cover for new turbines with little operational history, this has often resulted in insurers having to pay claims for loss of revenue for downtime whilst the manufacturers are trying to sort out ‘teething problems’.
As the number of turbine manufacturers has increased in the UK over the last few years it is evident that some of the entrants have offered sub standard technology which has proved unreliable. It would be prudent to point out that the unreliability of technology is more prevalent within the micro-mid range turbines as oppose the larger turbine manufacturers. Insurers are now much more cautious with the new entrants to the wind energy market in the UK
Parts availability/Delay in parts/Remote locations
One of the most common issues cited by insurers is the availability of turbine parts following damage/breakdown. Loss of Revenue claims are often prolonged due to the lack of availability of parts.
Some of the smaller manufacturers have very little infrastructure and supply chain within the UK with parts having to be shipped from Europe, USA/Canada and further afield for even for the smallest of parts.
Breakdown cover can cause issues for the insurer and also the wind turbine owner. Wind turbine insurers will not simply ‘pay out’ claims if the turbine stops spinning, which is often presumed by policyholders.
The definition of Breakdown cover from insurers varies very little, in summary there must be some form of mechanical or electrical derangement, the stoppage of the turbine must be sudden and unforeseen. Consequently any damage caused by gradual or ‘wear or tear issues’ will not be covered under the turbine insurance policy.
We have seen instances where a turbine has been brought to a stop with the cause being as result of a loose cable or defective installation, again this is unlikely to be covered.
Often it is difficult to determine if the cause of the problem is as a result of breakdown or simply wear or tear. For older turbines it is common for insurers to make part payments for claims, i.e where there are signs of wear and tear of the part but it is uncertain whether this has caused the stoppage.
Information from manufacturers
Following damage or breakdown to a turbine insurers often find it difficult to get information from the manufacturer to the cause of the breakdown. With the correct information being delayed then any claim is prolonged with the insurers costs increasing.
Many manufacturers/distributors only have small teams of engineers covering large parts of the UK, we have seen instances where one engineer covers the whole of the UK resulting in considerable delays in the initial inspection of the turbine following breakdown.
Lack of underwriting information in the UK
As mentioned earlier the insurance market for wind turbines is far from a mature market with UK insurers having to rely on their global network of offices to track information on turbine manufacturers.
This information obtained from across the globe is very useful to insurers in the UK however the information does not take into consideration the high winds in parts of the UK and the UK’s harsh winter. Much of the information passed across to UK insurers is from low wind countries with mild winters.
Refurbished wind turbines
A further challenge for insurers is the introduction of refurbished or remanufactured wind turbines, these turbines bring their own set of problems.
The most notable issues being parts availability with many of the turbine parts being obsolete, there have been instances when a complete new turbine has had to be installed due to lack of availability of parts.
Another issue being that the turbines being refurbished are already 15-20 years old having been imported in from Germany and Denmark in the main. There are question marks about the durability of the tower after 20 years.
In addition to this there are concerns about the quality and scope of the refurbishment work being undertaken.
As a consequence the availability of insurance for refurbished turbines in the UK is very limited with costs being much higher when compared to new/newer turbines.
New models of turbines
Insurers have concerns with manufacturers who are now making larger turbines. This appears common following the FIT cuts in the UK. Whilst insurers may be comfortable with a certain manufacturer and their respective technology which has been operating for several years, they may however be less keen to offer cover for a much larger model of turbine for this particular manufacturer. The same applies for large turbine manufacturers who have moved into the micro-mid range turbines.
Insurers feel that the technology involved in producing a 10kw turbine is very different to producing a reliable 100kw turbine and are therefore very cautious with providing cover for new models of turbines.
A recent issue we have seen for insurers is in respect of turbine blades and the replacement of blades following damage/breakdown is that insurers will only replace the blade that is damaged. The issue arises with some manufacturers only producing blades that are specially weighted that are only supplied in sets (of 2 or 3). There have been instances where a blade is damaged with the insurer paying for the replacement of the damaged blade with the owner of the turbine having to replace the undamaged blades at their own cost.
Insurers have had issues following a total ‘write off’ of a turbine, sometimes the turbine is obsolete/unavailable and a similar turbine cannot be erected. If the turbine is not similar the whole planning process has to be undertaken with all the associated delays.
Top Ten Claims Scenarios
1. Windstorm Damage
2. Lightning Strikes – it is worth noting that lightning is not the issue it used to be with the advance of lightning protection. Lightning damage would be most prevalent with the blades.
3. Gearbox/Generator Failure
4. Transformer Failure
5. Theft of Cables – this is usually pre operation of the turbines i.e before construction of the turbine.
6. Foundation Problems – these tend to be associated with inadequate bolts/fixings between the groundwork and the tower of the turbine. We have seen instances of turbines toppling over with turbines being a total loss.
7. Fires in the Nacelle – often down to mechanical/electrical problems in the pitch system causing turbine overspeed and hydraulic oil igniting when contacting with hot brakes.
8. General Electrical Failures – in particular generators, transformers and control panels. This is down to several different causes e.g lightning, defective material, workmanship etc.
9. Cracking in Foundations & Cracking in Turbine Towers
10. Damage as a result of Bird Strike or Foreign Objects
The wind turbine insurance market in the UK is still in its infancy. The number of operation turbines have increased significantly over the last few years with and lots of new entrants to the market which bring with it new issues to the market.
As the insurance market matures over the next few years and insurers have claims experience/loss ratio’s they can analysis we may see an increase in the cost of insurance within the UK. The feeling is the high winds and harsh winters in the UK compared with large parts of mainland Europe may make the UK insurers more exposed than their European counterparts.a