Managing the risks of energy expansion – McLarens

As global electricity demand continues to rise - projected to grow by 3,500 terawatt-hours over the next three years - emerging economies such as Brazil, India, and Colombia are leading the charge in energy infrastructure expansion.

This growth demands substantial investments in large-scale energy projects, ranging from hydroelectric to wind, solar, and biomass. However, the complexity and scale of these developments bring with them significant risks, making the role of the London insurance market and international loss adjusters more critical than ever.

The London insurance market’s unparalleled expertise and capacity have made it a vital player in managing the risks associated with energy infrastructure globally.

London-headquartered loss adjusting teams, typically from global firms with technical teams operating on the ground worldwide, play a key role in managing losses from such projects.

Ituango hydroelectric project, Colombia

The Ituango Dam, Colombia’s largest hydroelectric project, illustrates the immense challenges associated with energy megaprojects.

Designed to provide 17% of the nation’s electricity, the project experienced a series of failures, including landslides that blocked a critical diversion tunnel.

With rising water levels threatening the dam’s integrity, emergency measures led to the flooding of the powerhouse, causing significant damage and construction delays.

The resulting losses were reportedly in the billions of dollars, and the incident exemplifies the risks associated with geologically complex areas and highlights the vital role of loss adjusters in managing claims involving multiple stakeholders, complex assessments, and long-term remediation efforts.

Emerging challenges in renewable energy projects

A broader shift toward renewables has introduced a new set of challenges for insurers. According to a WTW report, insurance claims related to renewable energy projects surpassed $650m in 2022 alone, with over 650 incidents reported. Projects in emerging markets often face elevated risks due to logistical hurdles, equipment damage during transport, and difficulties in operations due to limited local resources.

The London market has responded by developing specialist insurance products and deploying experienced loss adjusting teams that are capable of navigating the unique conditions of each locale.

In these volatile environments, timely assessment and swift settlements are crucial in maintaining investor confidence and ensuring project continuity.

Ongoing challenges from traditional energy sources

Of course, it’s not just about renewable energy and emerging markets. In regions such as Latin America, Africa and the Middle East, the oil and gas sector remains vital.

There have been some interesting industry discussions about the importance of insurers and reinsurers continuing to support clients in the fossil fuel sector as the world navigates a path towards carbon reduction and net zero.

The same skills and market capacity, therefore, remain as relevant. From a claims perspective, these losses typically involve physical damage, including significant business interruption claims.

Repair efforts are cost-intensive, requiring specialist equipment, and manpower. Onshore sites, often located in remote areas, face logistical challenges in transporting materials and personnel.

Loss adjusters must navigate these issues within varying insurance frameworks, from Construction All Risks (CAR) policies to operational covers, balancing the interests of multiple stakeholders under financial and contractual pressure.

The role of global loss adjusters

Loss adjusters are at the forefront of managing energy claims in high-risk geographies, working in environments where remote locations, unstable geology, or complex logistical challenges compound risks. Adjusters must collaborate with local insurers, government authorities, and global reinsurers to deliver timely and fair claims outcomes.

Their on-the-ground knowledge, coupled with technical expertise, is invaluable in resolving complex claims and ensuring policyholders can recover quickly from substantial losses.

By Alistar Jacob, head of London international, McLarens