The increasing focus on ESG is also having a significant impact on future power sector risk management strategies
Pressures on workforce availability and maintaining supply chains arising from COVID-19 are proving challenging to the power sector, according to Willis Towers Watson in a new report. Additionally, the increasing focus on Environmental Social Governance (ESG) is also having a significant impact on future power sector risk management strategies.
The report outlines how the COVID-19 pandemic presents some unique risks to the power sector that must be managed effectively to maintain reliable supply. It also highlights key risks such as reduced electrical demands, moratoriums on construction projects, availability of personnel and travel restrictions which are impacting access to operating assets for maintenance.
However, some clients have taken advantage of the decrease in electricity demand and lower pricing to proactively advance scheduled maintenance operations forward, contrary to insurer expectations.
The increasing significance of ESG and changing climate risk landscape forms a key theme. The transition to a low carbon economy requires a fundamental reappraisal of risk in the power sector. Achieving a satisfactory ESG rating will be critical in enabling power companies to attract and maintain the support of key stakeholders in the future.
Other key highlights of the report include:
Capacity: Global capacity for Power business has reduced in two different ways; firstly, some insurers have withdrawn from the sector entirely and secondly, Willis Towers Watson has seen a reduction in the capacity that the remaining insurers are agreeing to deploy. Now in 2020, the total global capacity is approximately $3 billion, with a realistic capacity figure of approximately $1.5 billion.
Losses: with average global annual losses being approximately $2.5 billion, the Review concludes that the global premium for the Power sector has been below the average annual loss amount for some time.
Rating levels: In Q2-2020, most programmes saw rating increases of between 15% to 20%. At the time of writing, this has stayed relatively stable on a risk rating basis based on occupancy. The COVID-19 global pandemic has led to the global market place operating at a very uncertain time which has led to some hitherto unforeseen challenges and variances in offers.
Graham Knight, head of Global Natural Resources, Willis Towers Watson, said: “In these unprecedented and uncertain times, the issue of COVID-19 remained uppermost in all our minds as the power industry and their stakeholders begin to analyse the effects on their balance sheets and on their overall risk landscape.”
“As the power generation sector and its insurance partners adjust to conducting business during the COVID-19 pandemic, all parties must remain disciplined in assessing and managing risks.”
”Risks that are magnified by the pandemic, including the availability of plant and vendor support personnel and any disruption to operation and maintenance tasks, should be managed with the joint goal of ensuring plant reliability. At a time where plant resources might be limited, open and transparent communications with their insurance risk consultants should leveraged to the benefit of all.”
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