Insurance and risk overview for Offshore wind farms · Aon Risk Solutions | Global Power Specialty...

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Insurance and risk overview for Offshore wind farmsThursday, 24 January 2019

Aon Risk Solutions | Global Power Specialty

Proprietary & Confidential

Aon UK Limited is authorised and regulated by the Financial Conduct Authority. 2

Agenda

Aon’s involvement in offshore wind

Typical offshore wind insurance program

Implications of debt finance

Key risk considerations

Claims overview from Europe

Market leading capabilities

>16,000

MWof offshore wind

project experience

75%of all projects in

operation or under

construction

Settled

300offshore wind

claims

GBP160million

of claims recoveries

Debt financed

&balance

sheet JV

projects

Dedicatedoffshore wind

broking team in

the international

insurancemarket

Dedicated

claims

specialists

Insurance broker for

offshore wind

In-houserisk engineering

specialists

diversityof offshore wind

turbines ranging

from 2MW to

Extensiveplacementexperience

of the world’s

largest offshore

wind turbines

At the forefront

of innovation

including

foundation

design

Insurance market – offshore market overview

▪ EUROPE - GENERAL

▪ Prolonged ‘soft’ market conditions, pricing, cover and deductibles all to benefit of client between 2012-17, exaggerated for offshore wind

▪ General hardening of conditions over last 18 months – claims situation worsening

▪ Key trend – construction not profitable, operation

▪ PREDICTED - ASIA

▪ Will benefit from European experience and competition

▪ Expect loading from European insurers for new country developments, c. 10-15%

▪ Expect further loading for natural catastrophe exposure, c. 25%

Implications of debt finance on insurance design

Higher loss

limits

Longer periods

of cover

preferred to

increase cost

certainty

Contingent

Business

Interruption

coverage

Delay in

start-up and

business

interruption

coverage

– obligatory

Design cover

for turbines

dependent on

breadth &

robustness of

warranty

Lenders

Insurance

Endorsements

Full deisgn

cover for

Balance of

deductibles

Owner Controlled Insurance Strategy

• A proven approach covering in

excess of 18GW+ of offshore wind

farms being built or operating;

• Bespoke and broad offshore wind

wording, well tested by paying in

excess of USD 350M of claims to

• Accepted and expected by

international lenders, insurers,

contractors and suppliers;

Developing a bankable insurance strategy

What's covered?

▪ Physical damage to project assets

▪ Revenue lost due to resultant delay

▪ Transportation through to installation and

ongoing operation

▪ Revenue loss due to key installation equipment

damaged on site

▪ All Parties agreed under contract

▪ Third party property damage (TPL)

▪ Design defect - LEG 2 vs. LEG 3

What's not covered?

▪ Non-damage

▪ Delay from schedule slippage

▪ Contractor’s plant and equip., inc. vessels

▪ Wear and tear

▪ Warranties and guarantees

▪ Assets not included in the Sum Insured

▪ Breach of the Marine Warranty Surveyor recommendations

Key Coverage Summary

Risk considerations: Wind Turbine Generators

INSURER CONSIDERATIONS

▪ Who is the Original Equipment Manufacturer (OEM)

▪ Historical performance of turbine model

▪ If new – certification and changes from previous models, testing (length and environment)

KEY RISK

▪ Design or manufacturing issue causing damage to the wind turbine and consequential damage to the other project equipment, and significant downtime to the turbine(s) / project

INSURANCE RESPONSE

▪ LEG2 = reinstatement of consequential damage and any associated delay

OEM RESPONSE

▪ OEM response – replacement of defective part and improvement in design

Risk considerations: Contractors

▪ Experience, experience, experience

▪ Previous issues on other projects, lessons learned

▪ Marine Warranty Surveyor – who, scope and overall role

KEY RISK

▪ Inexperience of contractors leads to significant delay in the project, resulting in a delay to anticipated revenue

INSURANCE RESPONSE

▪ If contractors cause damage, the project insurance policy will respond to any delay as a result

CONTRACTOR RESPONSE

▪ If no damage is caused, project needs to make contractors contractually responsible for the delays caused

Risk considerations: Cables

▪ Main cause of insurance losses and delays

▪ Experience of cable supplier and contractor

▪ Proposed methodology, role of Marine Warranty Surveyor

KEY RISK

▪ Damage during manufacture, transportation or installation, resulting in damage and / or delay

INSURANCE RESPONSE

▪ If cable is damaged, the project insurance policy will respond to any delay as a result

CONTRACTOR RESPONSE

▪ If no damage is caused, project needs to make contractors contractually responsible for the delays caused

Risk considerations: Natural Catastrophes

▪ Location of project and exposure to natural catastrophe exposures – e.g. Typhoon risk in Taiwan

▪ Design parameters of turbine, cables and foundations –suitability for location and exposure

▪ Mitigation measures in place when there is an imminent threat

▪ Construction schedule which manages factors in anticipated weather seasons

KEY RISK

▪ Catastrophe event causing major damage and outage / delay to the project. Equipment does not respond as per manufacturers guidelines

INSURANCE RESPONSE

▪ Insurance policy will respond but subject to an increased project deductible (often including co-insurance for project) and potentially to a reduced limit of indemnity

Construction claims

CAR claims 2013 - 2018

Contractors Tools

Export Cable

Foundations

Gearbox

Inter-array Cable

Liability

Nacelle

Substation

Transformer

Vessel

Row Labels Count of INCURRED

Blade 14

Buoy 3

Contractors Tools 9

Export Cable 34

Foundations 34

Gearbox 3

Inter-array Cable 51

Liability 2

Nacelle 8

Substation 21

Transformer 7

Vessel 8

Grand Total 194

Construction claims

930,000 07,295,000

57,100,000

71,300,000

300,000

46,650,000

1,000,000

3,000,00019,480,000

800,000 34,000,000

CAR (EUR - 2013 to 2018)

Contractors Tools

Export Cable

Foundations

Gearbox

Inter-array Cable

Liability

Nacelle

Substation

Transformer

Vessel

Row Labels Sum of Total

Blade 930,000

Buoy 0

Contractors Tools 7,295,000

Export Cable 57,100,000

Foundations 71,300,000

Gearbox 300,000

Inter-array Cable 46,650,000

Liability 1,000,000

Nacelle 3,000,000

Substation 19,480,000

Transformer 800,000

Vessel 34,000,000

Grand Total 241,855,000

Operating claims

OAR Claims 2013 - 2018

Export Cable

Foundations

Gearbox

Inter-array Cable

Main Bearing

Nacelle

Substation

Row Labels Count of INCURRED

Blade 9

Buoy 2

Export Cable 21

Foundations 3

Gearbox 17

Inter-array Cable 7

Main Bearing 3

Nacelle 1

Substation 3

Transformer 8

Grand Total 74

Operating claims

1,380,00026,000

48,200,0000

1,335,000

19,260,000

0 00 700,000

OAR (EUR - 2013 - 2018)

Export Cable

Foundations

Gearbox

Inter-array Cable

Main Bearing

Nacelle

Substation

Transformer

Row Labels Sum of Total

Blade 1,380,000

Buoy 26,000

Export Cable 48,200,000

Foundations 0

Gearbox 1,335,000

Inter-array Cable 19,260,000

Main Bearing 0

Nacelle 0

Substation 0

Transformer 700,000

Grand Total 70,901,000

Insurance and risk overview for Offshore wind farms · Aon Risk Solutions | Global Power Specialty...

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