How power companies can build resilience in a soft insurance market
Competition is heating up, capacities are flowing back in, and prices are softening – shifting the balance squarely in the buyer's favor.
While capacity has increased modestly with an uptick in managing general agent (MGA) activity and insurers re-entering the power market, the real game-changer is incumbent insurers jostling to deploy capacity and maintain market share.
The dual pressure from both sides – increased capacity and pressure to maintain market share – is driving pricing on a downward trajectory.
Despite significant losses at U.S. power and utility plants, renewal cycles are achieving double digit rate reductions in 2025. Minimum reductions of c.10% - in most cases – can be increased to c.30%. Attritional losses (~$20 million each) aren’t shaking the market either. New entrants and surplus capacity are keeping underwriters on their toes.
The softening market continues to gather momentum.
While terms and conditions aren’t changing, long-term agreements (LTAs) and no-claims bonuses (NCBs) are back in play. Soft market credits are a useful tool to optimize long-term risk strategies, but sharp wordings remain non-negotiable. Irrespective of hard or soft market cycles, wordings should be sharp and aligned to your risk.
Underwriting authority is diluted in a soft market. “During harder market cycles, London markets take control of the book, but we’re seeing more authority given to local offices in a softening market. Some markets that have been absent in region for five or six years are starting to reemerge” Declan Cleary, Power & Utilities Broker, Willis Natural Resources, U.K. With less referrals into London, local underwriters can also become more responsive, reducing the time taken by them to make decisions.
A global broker that’s well connected in local hubs, is able to assess these trends and access capacity where it is most competitive.
Territories such as Qatar and Abu Dhabi are changing their process for tendering for new power projects. Buying spare equipment as part of a contingency plan is complicated in a market where capex is tight and lead times for equipment are long.
Any gaps in programs or warranties can leave entire supply chains and projects exposed to delays and disruption. Warranties are a financial outlay, but in negotiations with insurance markets, warranties can give underwriters confidence to reduce premium. Data modelling can cut through this complexity and identify the optimal financial decisions to balance cost and scope of blended warranty and insurance coverage.
After a certain point in a machine’s lifespan, replacing old or inefficient equipment with new parts can ensure the plant remains operational and safe. If upgrades keep profits flowing, invest. If not, rethink risk decisions.
“For projects that are slated for closure, the future lifespan begins to run into a small number of years. It’s important to assess whether insurance cover makes financial sense when balanced with the expected future earnings. Sector specialist brokers can identify the point at which the business is truly indemnified and where to draw the line.” Carlos Wilkinson, Head of Power & Utilities, Global Willis Natural Resources, U.K.
There are early signs that some insurers are working to establish innovative hubs. Recently, a new spur of a well-established insurer has been exploring opportunities to blend existing products under an umbrella solution.
The shift toward thinking of risk as a portfolio rather than silos – and the cost efficiencies this approach can bring – is a refreshing and forward-thinking solution. It’s turning multi-line insurance model around by creating risk transfer efficiencies and passing these on to clients.
A number of coal phase outs and gas conversion projects have hit barriers moving from the construction to operational phase of projects. Before becoming fully operational, 72 hours of continuous operation is required to prove operational integrity. But power plants that have shifted from baseload to peaker operating models are often unable to run uninterrupted for 72 hours uninterrupted due to intermittent renewable energy being prioritized.
Clients with robust risk information have managed to provide a sound and technical rationale to overcome the 72 hours of continuous operation. A strong technical broking negotiation can articulate this to underwriters, backed by risk engineering data.
Profitability for insurers is expected to improve in 2024 and 2025 due to decelerating claims costs, lower inflation, and higher investment yields. But new risks such as cyber threats to increasingly interconnected power grids, terrorism, political risks, and environmental liabilities are driving demand for specialized insurance products.
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Download the full review to find out how to prepare for any bumps in the road as the demand for power continues to accelerate.
| Title | File Type | File Size |
|---|---|---|
| Power Market Review 2025 | 7 MB |
