What drives insurance risk in the wind-energy market?

Each wind-farm project carries a different level of risk mostly due to the many original equipment manufacturers, (many no longer in business) and a wide variety of turbines in the field. From an insurance standpoint, the variety makes it difficult to compare one claim to another. To tackle these concerns, two primary coverages are considered: equipment breakdown and property insurance. Lets discuss them briefly.

Equipment-breakdown insurance, also known as boiler and machinery coverage, typically covers mechanical and electrical damage to equipment. In a wind turbine, covered equipment can include the blades, generator, gearbox, and other mechanical or electrical components. In some cases, this coverage goes beyond the typical manufacturer’s warranty, and may include business interruptions – a loss of revenue during the repair of an insurable event.

The right wind-turbine coverage can simplify the insurance claims process and decrease business interruptions.

Property insurance mostly covers fire, theft, weather, and other natural hazards. Although most property perils tend to be manufacturer independent, equipment breakdown failures are manufacturer dependent. A manufacturer without the necessary infrastructure in a market, such as service, support, and spare parts, presents a high risk to an insurer. Likewise, a newly released turbine will not have the operating hours or track record comparable to a turbine with thousands of installed units. Turbines without a track record typically experience more costly and lengthy periods of repair, benefiting neither the insured nor insurer.

However, what does benefit Hartford Steam Boiler is a database that tracks most turbine OEMs and individual units produced since the late 1990s. The database currently lists 163 wind-turbine OEMs, and over 1,000 different models. Many of them are discontinued. Some manufacturers have gone bankrupt, merged, or completely vanished from the wind-energy market even though their units are still operational and likely in need of insurance. At one point, our company reported having more than 30 different turbine OEMs in almost the same amount of open submissions for coverage. Accordingly, an insurer must completely understand these widely varying risks.

An OEM’s support network, including its ability to provide service, spare parts, and market adaptability, are also risk drivers. When a turbine breaks down, an OEM with a local repair network and technical support can promptly begin repairs. However, those with limited repair networks and little or no U.S. presence carry an increased risk, especially if their support network comes solely from Asia or Europe.

Submissions and subsequent claims have been reported from areas in the U.S. with only a few turbines installed, requiring technicians to travel from abroad to work on the units. As a result, repairs experience significant delays and increased costs. For instance, if a yaw motor fails it could take several weeks for repair because the parts and technicians are traveling from another country. Imagine the delays and expenses when a larger component fails, such as a gearbox or generator.

When in the market for wind-turbine coverage, it is important to recognize and understand the difference between OEMs, their warranties, and ability to promptly provide spare parts and service. For now, future O&M and insurance costs are dependent on the OEM and turbine model under consideration as it reflects the site-specific risk. WPE

Stephen E. Michna
Engineer
The Hartford Steam Boiler
Inspection and Insurance Co.