Arrested Development

With the renewables sector worldwide poised to enter the busiest period for new installations in its history, across both onshore and offshore, it’s more important than ever to talk about the perils of construction - and the challenges that construction losses and claims present to the insurance market. 
 
Across all renewables technologies, the construction track record has been mixed. While risk management processes are progressively improving, global construction activity continues to be driven in ‘boom and bust’ cycles that place enormous pressure on developers, contractors and the supply chain. 
 
We saw this cyclical pattern emerge first in US onshore renewables, where Production Tax Credit (PTC) and Investment Tax Credit (ITC) incentive deadlines would, like clockwork, drive a market-wide rush to get projects started. During these periods, availability of Tier One contractors and the right installation equipment was stretched to the limit, opening the door to human error and mechanical defect issues - and ultimately substantial project delays. 
 
More recently, we’ve seen it in global offshore wind, where stop-start auction rounds have led to peaks and troughs in construction, impacting risk management and hampering the efforts of the industry to invest in its supply chain - most notably vessels. 
 
With 2030 targets to meet, the Inflation Reduction Act (IRA) driving a spike in new investment stateside, and auctions scheduled for numerous European offshore markets this year, all the signs suggest we’re entering the start of the next boom period, and it’s imperative that we respond to lessons learnt from past cycles, taking the opportunity to cross- compare between technologies. 
 
This will be even more pressing in light of the potent combination of emerging risks that we have covered in our recent reports - namely the growing frequency and severity of extreme weather losses worldwide, the rising tide of mechanical defect and logistical issues that have accompanied the ‘race to scale’, and the backdrop of wider supply chain challenges that have persisted since Covid. 
 
Construction claims, particularly for Delay in Start Up (DSU) losses, were already notoriously difficult to settle, especially for those with no expertise in the class. However, as projects increase in scale and new insurance capacity enters the market – all set against this evolving risk landscape – the market must brace itself for unprecedented levels of complexity. 
 
In a world where ‘quota sharing’ is becoming the norm, insurers need to find more effective ways to collaborate to ensure sustainable terms and reliable claims handling for construction risks. For insureds, robust project monitoring may now make all the difference to ensure that, should the worst happen, claims are paid swiftly and fairly. 

As ever, our approach is to be as transparent as possible, and to share the hard-won knowledge of our underwriting and claims teams where we can, to support continuous improvement. 
 
In this report we look at the key trends emerging from 10 years’ worth of our construction claims data across the major renewable energy technologies, before speaking to experts from across claims, underwriting, loss adjusting and project monitoring to bring forward our recommendations for the market. We’d like to thank RELA and CCi for their contributions. 

GCube's market insights reports are available exclusively to GCube's insureds and brokers.