Number of large claims for global power industry rising: report

The global power industry has seen an increase in the number of large insured claims over the last several years, a troubling trend as insurers may become more reluctant to write business for that industry, suggests a recent report from Bowring Marsh.

Since 2005, the insurance industry has seen at least one major claim of more than $25 million related to the power industry, and most years have had more than one, suggests the report titled The Impact of Large Losses in the Global Power Industry, released earlier this month.

The number of large losses has also increased since 2005, with seven major losses in 2010, Marsh notes. The first half of this year had four major losses, the report suggests.

Loss claims between 2001 and 2011 averaged $190 million annually, according to 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.

The power industry has faced challenges in the wake of the global economic crisis that began in 2008, including decreasing demand for power as a result of less industrial activity, the report suggests. Increasingly frequent and severe natural catastrophes, such as earthquakes and floods, has also had a major impact on the power industry, Marsh suggests.

Overall demand for power is increasing, however, and new technologies to improve efficiencies are creating concerns, such as insurers being asked to cover unproven technology, the report notes. Increasingly valuable equipment has also made losses more severe, the report suggests.

Other issues such as infrastructure, supply chain and internal operations, such as retaining employees at power companies are also affected by the increase in losses. Less tangible factors, such as the impact on company reputation, are also affected.

It’s critical that the power industry begins understanding and mitigating risks for major losses and be prepared to work with insurers and brokers to resolve claims efficiently, the report notes.

“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,” Philippe Du Four, chairman of Marsh’s Global Power Practice, commented in a written statement. “Improving risk management techniques to reduce claims frequency and costs should be a business imperative for power organizations.”

“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,” he added. “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.”

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