Increasing number of major losses challenge power industry

Paul Boughton

The global power industry continues to see a steady rise in the number of large insured claims since 2005, putting pressure on both the supply of global power at a time of rising demand and on the future of the industry itself, Marsh said in a report entitled The Impact of Large Losses in the Global Power Industry, published today.

The report, which is based on claims recorded on operational power accounts handled by the London office of Bowring Marsh, Marsh’s specialist international insurance placement division, reveals that since 2005, insurers have been involved in settling at least one large power claim annually in excess of $25 million.

Since 2005, the number of large losses has continued to trend upwards with seven losses of this size recorded in 2010 – the largest annual number; four such losses occurred in the first half of this year alone.[Page Break]

In addition to a rise in major incidents, power organisations also face growing challenges from an aging workforce, deteriorating equipment, a growing demand for electricity – especially from emerging economies, environmental regulation, and the rise of renewable energy.

Philippe Du Four, Chairman of Marsh’s Global Power Practice, commented: “Insurers are reconsidering their stance on pricing and conditions for the global power industry following sustained heavy losses arising from machinery breakdown, fire and explosion, natural perils and associated business interruption. Improving risk management techniques to reduce claims frequency and costs should be a business imperative for power organisations.”

Also, according to Marsh’s report, power companies have sustained considerable losses over the past decade due to more frequent and severe natural catastrophes, infrastructure-related issues in developing markets, and an increase in the value of equipment. In addition from 2001 to 2011, claims totalling $1.2 billion were attributed to breakdowns in turbines, transformers and generators alone.[Page Break]

“If large claims continue to blight the power industry with the same frequency that has been observed over the past decade, insurers’ appetite for writing power business is likely to change. Many are already taking a much more rigorous approach to pricing these risks. This, in turn, could lead to a reduction in insurance capacity and market competition and, ultimately, rising premiums,” added Mr Du Four.

Marsh, a leader in insurance broking and risk management, teams with its clients to define, design, and deliver innovative industry-specific solutions that help them protect their future and thrive.

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