Common areas of underinsurance in the renewable energy sector

Earlier this year we provided guidance on underinsurance of renewable energy projects and the importance of reviewing your insured values and insurance policy wordings. Underinsurance isn’t something you can afford to ignore, as it can have a significant financial impact if the time comes to make a claim.

In this article, we explore some of the common areas where underinsurance can occur for the renewable energy sector.

Cyber protection

In today’s digital landscape protecting against cyber threats is more important than ever. This is especially true for businesses in the renewable energy sector. According to ENISA’s Threat Landscape Report 2024, the energy sector was the tenth most targeted by cyberattacks,¹ and Dragos reported a 28% increase in cyber incidents targeting industrial control systems, including those used in renewable energy production, in 2023 alone.²

In fact, concern around cyber risks has grown considerably, placing it among business leaders’ top five risks overall for the first time in our UK Business Risk Report. Exposure to cyber risks, including data breaches, system hacks, and ransomware attacks, are becoming more frequent and costly.

Cyber liability insurance can safeguard your business by covering:

• Business interruption and lost revenue.
• Cyber extortion.
• Data and hardware restoration and repair.
• Data breach notification services.
• Employee training.
• First and third-party costs.
• Forensic services.
• Fraudulent representation and legal fees.
• Incident preparation and response support.
• Regulatory defence and penalties.

Management liability and crime

For companies, management liability cover is crucial to protect directors and officers from legal claims arising from decisions made while managing the business. It also includes protection against financial loss due to fraud or dishonesty by employees.

A report by the UK government found that private sector fraud costs the UK economy up to £157.8 billion annually.³ Moreover, the Economic Crime and Corporate Transparency Act (ECCTA) has introduced new responsibilities for directors. This includes potential penalties or prosecution, increasing personal liability risks.⁴

With this evolving landscape, having management liability in place is essential to safeguard your renewable power leadership team. It brings together three areas of risk into one single policy:

• Directors and officers liability (D&O).
• Company legal liability (CLL).
• Employment practice liability (EPL).

Even if a claim is false or is simply an allegation, you still have to defend it. This is why we recommend clients consider this vital insurance.

Professional indemnity insurance

For companies in the renewable energy space, professional indemnity (PI) insurance is vital to protect against claims of negligence or errors in the professional services you provide. Whether you provide renewable power consultancy, project management, or energy supply technical design.

Research has found that factors such as contractor errors and defects are the root cause of many renewable energy claims, representing almost two-thirds of insurance claims for offshore wind.⁵ This can lead to substantial legal costs and financial losses for the companies involved.

Ensuring you have PI cover in place can protect against legal costs and expenses involved in defending legal claims and financial loss. Particularly since the complexity and scale of renewable projects is increasing. It can also play a key role in securing new clients and reassuring your existing ones. Should you face a claim for professional negligence, it can be a very time-consuming, expensive, and complicated process. The advice and expertise of an expert PI insurance broker can be pivotal in getting the claim dealt with efficiently and effectively.

Best practices for insuring renewable energy projects

Insuring renewable energy projects requires careful consideration of the unique risks and challenges associated with these technologies. Here are some best practices for insuring renewable energy projects:

1. Accurate rebuild cost assessment. Ensure that the rebuild cost of the renewable energy system is accurately assessed. And that it takes into account the market value of the equipment and installation costs.
2. Specialised insurance coverage. Tailored protection for the unique risks associated with these renewable energy technologies.
3. Regular maintenance and inspection. Help identify potential issues before they become major problems.
4. Business interruption coverage. Consider business interruption coverage to protect against losses in the event of a system failure or downtime.
5. Net zero emissions. Consider the net zero emissions goal when selecting an insurance provider. Some providers may offer specialised coverage for renewable energy projects that support this goal.

By following these best practices, businesses can ensure that their renewable energy projects are adequately insured. Protect your investment and support a sustainable energy future.

Don't let underinsurance be the Achilles’ heel of your business

As your business grows and changes, so should your insurance coverage. Underinsurance can pose a significant threat to your business's financial health and growth goals. It's crucial to regularly review your insurance coverage, accurately assess your business's value and potential risks. Make sure you seek professional guidance from experienced professionals who have a proven track record in the renewable energy sector. By doing so, you can ensure that your business is adequately protected, primed for growth and prepared to weather any storm that comes its way.

Sources:

1 enisa.europa.eu/enisa-threat-landscape-2024
2 dragos.com/ot-cybersecurity-year-in-review
3 crowe.com/annual-fraud-indicator
4 changestoukcompanylaw.campaign.gov.uk
5 rechargenews.com/contractor-error-and-defects-on-the-rise-in-offshore-wind-insurer

^{The information contained herein is based on sources we believe reliable and should be understood to be general insurance and risk management information only. The information is not intended to be taken as advice and cannot be relied upon as such. Statements concerning legal, tax or accounting matters should be understood to be general observations based solely on our experience as insurance brokers and risk consultants and should not be relied upon as legal, tax or accounting advice, which we are not authorised to provide.}

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