Fraser McLachlan warns that hail is becoming an increasingly serious threat, with re/insurers keen to limit exposure, which represents a challenge for new renewable energy projects.
The re/insurance markets are moving to limit exposure to hail storms as part of the rising threat of severe convective storms (SCS), already seen as a rising source of claims in recent years.
The result is that renewables, and the solar industry in particular, will face trouble getting new projects as well as older assets covered against the threat of hailstorms.
That was the word from Fraser McLachlan, CEO of GCube Underwriting, speaking to GR, after the publication of a report from his firm, a renewables specialist, called “Hail No! Defending Solar from nature’s cold assault”.
“Hail is becoming a huge issue. We’re seeing major carriers limit their maximum coverage to $1m per risk,” McLachlan (pictured) warns.
The claims environment has deteriorated for hail and SCS against solar projects within the last three to four years, he emphasised. Events are striking more frequently and on a global basis, from the biggest market in the US, to as far afield as the UAE and Australia.
“Sub-limits have got to a point where the renewables industry is shelving projects due to insurance coverage. It’s either costing them too much, or else they can’t get the limits they need for the sclaoe of the project,” he says.
“The world’s weather is certainly changing and getting worse,” he continues. “And the other thing is that scale of some of these solar projects is getting bigger. Hail is quite localised, but with a bigger footprint, there is a lot more to hit.”
For a project valued at $200-300m, the most a client can expect to find in the market would be “between $20m and $50m”, he suggests.
“The remainder is left on the project’s balance sheet, and investors are saying they can’t afford to run that risk on a balance sheet and for their P&L,” McLachlan says.
The hard market, particularly for reinsurance, is driving the issue, he explains, as insurers’ own costs have risen, putting them under increasing pressure to tighten wordings and keep a lid on exposures they will struggle to pass on to their reinsurers at the previous prices and attachment points they enjoyed just a few years ago.
Market attempts at innovation are only a partial solution at best, he suggests.
“There are parametric products out there, for instance, and they have their place, but more on a reinsurance basis to support people like ourselves. It’s much harder to model for a SCS or hail exposure than for a traditional property catastrophe coverage that the parametric providers have grown up with,” McLachlan says.
GCube’s recent report said the solar industry is in urgent need of practical solutions to the “existential threat” posed by hail.
Hail claims now average around $58.4m per claim and account for 54% of incurred costs of total solar losses, the study noted. In response, the report suggested that “a pressing opportunity has arisen” for the industry to deploy innovation and collaboration to mitigate the complex issue of hail risk.
The report identified several key factors contributing to solar project vulnerability, including inadequate hail risk models, ineffective mitigation strategies, limited and costly insurance coverage, and an uncertain funding landscape.
It also highlighted how solar manufacturers, in their pursuit of reducing the levelised cost of electricity, have introduced larger solar panels with thinner, more fragile glass and have chosen locations more susceptible to hail risk, threatening the financial viability of future projects.
GCube offered two patented technologies developed by Solar Defender Technologies as potential problem-solving innovations.
The first solution proposed was Hail Strike Defender, a relatively cheap net to catch hail stones, that protects single axis tracked solar installations while maintaining optimal energy output – a key differentiator that sets the solution apart from existing protection mechanisms in the market.
The second solution, Solar Shield, is designed to protect fixed-tilt solar panels that are installed on rooftops and provides a panel face protector that deflects the impact of hailstones. Both patents provide substantial protection of modules against hail of up to 250 joules, the firm said.
McLachlan said that retrofitting older solar projects would be a good start for innovation.
“As solar panels have got better, they’ve also got thinner, so they’re actually more susceptible to damage,” he warned.
“Many projects were conceived and developed three to four years ago. There is more robustness in the financial models now than for those projects designed a few years ago, before convective storms were on anyone’s radar,” he said.
Looking ahead to the upcoming 1/1 reinsurance renewal, the outlook for 2024 is for mor claims and more restrictions in the market in response, McLachlan underlined.
“At reinsurance renewals, we’re going to see more premium being charged for this peril, and more restrictions on protection driven from both sides,” he said.
As for fresh capacity coming in, he suggested the market had “become wise to the risk”.
He added: “I can’t see new entrants coming in. Anyone coming into this market would come in at a pricing level at which they would make money from it, but I can’t see more mainstream players coming in. The market has paid its fair share of losses, and as a result it’s got a lot wiser than a few years ago.”