Combined market losses in offshore wind grew from GBP 124 million (around EUR 145 million) in 2010-2015 to GBP 500 million (around EUR 585 million) by 2020, with the average insurance claim nearly doubling from GBP 1.67 million (around EUR 2 million) to GBP 3.08 million (around EUR 3.6 million) in the same period, according to a new claims report titled from GCube Insurance.
Contractor error and component defect have accounted for 55 per cent of these claims by frequency and 83 per cent of total claims spend, the report titled “Uncharted Waters” finds.
Subsea cables, including both inter-array and export cables, have been particularly affected, with 44 per cent 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, totalling 30 per cent of claims incurred and over 50 per cent 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, GCube writes.
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, the insurance company said.
GCube warned about the same causes behind the increasing losses in an interview with OffshoreWIND.biz in April.
Now, the company has reiterated that, as the global market enters a new phase of growth, corrective action is needed to incentivise 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.
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 and gas enter the market, these destabilising factors must be addressed before they become embedded practices, the company 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”, said Fraser McLachlan , CEO of GCube.
Meanwhile, natural catastrophe (Nat Cat) 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 US and Japan.
Cooperation between the supply chain and insurance markets will be critical to secure, along with learnings from the research and development (R&D) process, ensuring knowledge sharing for the formation of sustainable practices in new risk environments, GCube said.