Insurers Can Save Money With Mature Risk Engineering Strategies

The potential for damage often leads companies to make overly conservative risk estimates to ensure sufficient protection.

FREMONT, CA: The increased frequency and severity of extreme weather events, and the devastation they cause, are top of mind for many organizations. For renewable energy companies, the possible destruction following a storm often translates to higher insurance costs when coverage premiums are already increasing substantially.

The potential for damage often leads companies to make overly conservative risk estimates to ensure sufficient protection. Unfortunately, this implies that many renewable energy organizations may purchase unnecessary insurance coverage at the expense of investment in their projects.

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But newer modeling techniques that consider additional variables provide renewable energy companies with more accurate and higher confidence risk estimates and empower them to achieve substantial cost savings.

Single-location risk models deficit accuracy.

Risk modeling for renewable energy properties, like wind or solar farms, traditionally considered the insurable entity's location. But models can rarely account for the large areas covered by a single operation. Also, traditional models often base their estimates exclusively on location without considering other attributes that could influence a structure's resilience during a storm.

Let's take the instance of a solar farm that spans over 100 acres in an area prone to convective storms. A conventional model will consider the likelihood that the solar farm is hit by a hailstorm and estimate the possible damage, often in the tens of millions of dollars.

But the storm's intensity is improbable to be uniform across the large area. So while some solar panels may be damaged by hail, others may be completely unscathed.

Similarly, a flood may not cause the same water elevations across a large insured property, with some areas undergoing water damage and others left dry.

Single-location risk models tend to give an all-or-nothing result that may not reflect a property's real exposure. As a result, concern around lack of accuracy often leads risk managers of renewable energy companies to slip on the edge of caution and purchase extra coverage.

Increased certainty and cost savings through new risk modeling techniques.

Newer, more granular modeling techniques can look at aggregate locations and engineering information, like the type of property and construction material, occupancy, layout, and elevation. Engineering information enables more accurate risk estimates based on the main exposures of different property types.

Hail, for instance, is likely to impact a solar farm more prominently than a wind farm, while lightning is generally more difficult for wind farms. Windstorms and flooding may also affect solar and wind farms differently, leading to more accurate information when models are run for each peril.

Often, these newer models show credible exposure reductions of 25% to 35% for rare weather events that can have a big impact. However, some companies have seen their exposure decrease by up to 60%. At times, the models disclose that a company's exposure is below the primary insurance limit and remove the requirement to purchase excess coverage or extra limits, leading to substantial savings.

Although rare, there is the capacity that more precise modeling will instead uncover a greater exposure for companies. While this would require increased insurance coverage and translate into extra costs, renewable energy organizations in this position can still advantage from increased certainty that they are purchasing the right amount of coverage.

More accurate modeling enables better risk mitigation.

With more accurate information, risk managers can negotiate insurance terms more confidently and enact important risk mitigation measures.

Renewable energy technologies are undergoing accelerated growth and profound change. As a result, designs and installed components are changing rapidly. In some cases, those changes may present new risks, and in others, they may prevent them.

Apart from gaining greater clarity and more accurate estimates to help risk professionals purchase the most proper insurance coverage, sophisticated energy risk engineering solutions can help your:

- Risk mitigation and control: Applying best practices to loss control measures can decrease the frequency and severity of outages or losses.

- Decrease of the cost of risk: Accurate risk evaluations and loss modeling support companies' risk mitigation and retention strategies, aiding risk managers make the best risk transfer choices.

As the industry grows, renewable energy companies can benefit greatly from implementing advanced risk engineering strategies to better manage hazard exposures and confidently invest in their project's future.

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