Increasing focus on cost-competitiveness has led to prolific cost-cutting in the design, manufacture, construction and operation of offshore wind over the past decade. This competitiveness has increasingly come at the expense of quality control, increasing the frequency and severity of insurance claims in the sector, and putting pressure on a strained insurance market.
As the global market enters a new phase of growth, corrective action is needed to incentivize quality control processes and accountability for financial losses throughout the offshore wind supply chain, as well as to promote a fairer sharing of risk with all the parties, not only insurers involved with offshore wind projects.
This is according to a new claims report titled “Uncharted Waters” from GCube Insurance. “Uncharted Waters” highlights that combined market losses grew from £124 million in 2010-2015 to £500 million by 2020, with the average insurance claim nearly doubling from £1.67 million to £3.08 million in the same period. Contractor error and component defect have accounted for 55% of these claims by frequency and 83% of total claims spend.
Subsea cables (inter-array and export) have been particularly affected, with 44% of all cable claims spend attributed to contractor error in transit and cable laying. This has contributed to subsea cables being responsible for the most frequent and expensive losses between 2010-2020, totaling 30% of claims incurred and over 50% of total claims spend. Adoption of international standards, designs and expertise will be needed to reduce technical risks and permit the adoption of a fairer sharing of risk across the sector.
According to GCube, the “race to the bottom” on project costs, combined with a soft insurance market cycle exacerbated by broad policy terms, has resulted in significant change in the overall insurance market. A re-evaluation is needed of how risk is allocated to support the market’s longevity. As new players from industries such as oil & gas enter the market, these destabilizing factors must be addressed before they become embedded practices.
Fraser McLachlan, CEO of GCube, said: “Put simply, the insurance sector must take a more unified approach to writing offshore wind insurance, and the supply chain must accept its share of accountability on offshore wind claims. The cable protection system issues unearthed earlier this year have hopefully brought to attention the fact that action on quality control needs to be taken if the industry is to prevent further losses down the line.”
Meanwhile, natural catastrophe risks will continue to increase and test the applicability of designs, procedures, best practices, and insurance terms in the coming years — particularly in emerging offshore wind markets such as the U.S. and Japan. Cooperation between the supply chain and insurance markets will be critical to secure, along with learnings from the research and development process, ensuring knowledge sharing for the formation of sustainable practices in new risk environments.
McLachlan continued: “Further accountability from all parties for their corresponding risks is now needed to share the load of responsibility, permitting sustainable development of narrower terms and bespoke policies. GCube’s longstanding experience in offshore wind insurance gives us significant insight into the underlying challenges and opportunities impacting the market, and we are committed to sharing learnings and recommendations to support our clients and the broader offshore wind industry at this critical juncture of progress.”
These themes are explored further in GCube’s report “Uncharted Waters: Navigating Emerging Risks and Rising Claims in Global Offshore Wind,” released today. The report for GCube’s insured clients and brokers analyses offshore wind claims data from across the industry over the past decade and provides recommendations for mitigating these losses. To request a copy of the report, please visit: http://www.gcube-insurance.
News item from GCube
Filed Under: News