The global energy sector is particularly exposed to the COVID-19 pandemic and is in the “eye of the storm” as global capacity evaporates while climate change risk remains paramount, a new report from Willis Towers Watson says.

The report says the energy sector “continues to reel from the effects of the global insurance market’s retreat from coal”.

Total global capacity has fallen to around US$3 billion ($4.73 billion), with a “realistic” capacity figure half that, the Power Market Review for 2020 says.

“It won’t come as any great surprise to most readers that the power insurance markets have continued to harden significantly in 2020 and there is no denying that the past 12 months have been challenging ones for the power industry and their brokers,” Graham Knight, head of Global Natural Resources at Willis Towers Watson says.

The COVID-19 pandemic has introduced “unprecedented challenges” for the global power sector across its core commercial, technical, operational and financial functions.

Power business has reduced as some insurers have withdrawn from the sector entirely and the remaining insurers deploy less capacity.

With average global annual losses of around US$2.5 billion ($3.59 billion), the review concludes that the global premium for the power sector has been below the average annual loss amount for some time.

In the second quarter, rating increases were 15-to- 20%.

“The one common denominator for buyers is simple: the hard market has truly arrived; the placing process will take longer than you might be used to,” Mr Knight says.

He recommends open and transparent communications with risk consultants and says it is critical for power firms to cultivate insurance relationships and take the time to communicate thoroughly with their cover providers.