After enduring years of hard market conditions, the (re)insurance market cycle is starting to turn.
(Re)insurance markets are responding to a triad of factors: a more stable year for business interruption losses; a relatively benign year for natural catastrophe (nat cat) losses; and a reduced frequency of machinery breakdown-related losses. These trends, coupled with new capital, are creating competitive forces on (re)insurers and accelerating the transition to a softening market.
- More competitive pricing is on the horizon for property and business interruption insurance.
- As markets compete for big business, power companies will be in a stronger negotiating position to secure more optimal terms, pricing and capacity. But risk managers cannot afford to take their foot off the pedal.
- Plant owners and operators must continue to deliver robust maintenance and asset integrity regimes to limit forced outages and demonstrate availability.
- Equally, (re)insurers will need to lean into power companies’ specialist knowledge of operations and technologies to really understand their risks and find solutions that are commercially reasonable.
- With the market approaching a new phase, the value of getting this approach right is essential to enable you to take full advantage of the opportunities.
Fewer headline losses are accelerating the shift to a softening market
Lower-level attritional losses remain a constant, but the absence of headline losses (>$500m) in 2023 and 2024 is paving the way for more competitive pricing for the power sector in the year ahead. Despite the general trend of lower losses, tunnel collapses have emerged as a clear outlier in 2023 and 2024. Several hydroelectric plants have suffered financial blows of property damage and business interruption.
The profitability scale is showing signs of shifting. The hard market did not discriminate, and rates have been higher across the board in recent years. Although harder market conditions have enabled (re)insurance markets to meet their revenue goals through rate increases, pressure to grow the book is mounting. (Re)insurers are competing to win and retain the biggest premiums by driving pricing down and capacity up.
How to make strides in a softening market
- Engage in risk engineering to supplement your risk controls with an objective external perspective, overlayed with benchmarking insights.
- Do your research to make sure your revenue expectations are accurate.
- Build and maintain relationships in the market to build confidence with (re)insurers.
Help (re)insurers to differentiate you by helping them understand the steps you’ve taken to manage and control your risk exposures.”Carlos WilkinsonHead of Power & Utilities, Downstream Natural Resources, WTW
Prepare for surging demand: Stability will be under the spotlight
The interplay between renewables and power will evolve, but the thermal power sector maintains its core role in meeting base load demands. The power sector is positioned to capitalize on this demand, and risk managers will have a role to play in building risk resilience.
Read the full article to find out how which trends are set to impact risk managers’ decision-making in 2025.
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| Title | File Type | File Size |
|---|---|---|
| Forward-thinking power companies are driving business results in a softening marketPDF | .9MB |
