A significant hardening of Australia’s insurance market threatens the viability of existing and proposed renewable energy projects, global broker Willis Towers Watson (WTW) says.

Insurance pricing is hardening to the point of a doubling in insurance costs in Australia’s renewable energy sector for 2020 and beyond when compared to budgets prepared in the precious financial year, WTW says in its inaugural Renewable Energy Market Review 2020 report.

“Faced with deteriorating loss ratios and increasing costs, the renewable energy insurance market seems to have come to a tipping point as truly hard market conditions have emerged during the course of the last 12 months,” it says.

“Underwriters are setting them a stern test as a result of significant losses in the sector, during both construction and operations,” it says.

The sector must “come to terms with the reality that coverage previously offered may no longer be available,” WTW says, warning that revenue models which were developed with flat insurance premium estimates–and assumptions that coverage would be consistent over the life of the project–can no longer be counted on.

Billions of dollars’ worth of projects are in the pipeline for Australia for wind, solar and hybrid technologies such as solar/hydrogen plants.

Risk engineering will be particularly crucial in the proposal stage to ensure there is enough insurance market capacity and appetite to back these projects, the report warns.

A number of insurers have quit the Australian market and capacity is dwindling. Those underwriters that remain have markedly less appetite for providing the same amount of capacity that they have historically deployed, leading to hardening market conditions.

This is exacerbated by developers in Australia seeking opportunities further afield, in regions that have natural catastrophe exposures where insurers are already wary after claims from flood, hail, bushfire and cyclone.

WTW says it’s no longer possible to have a “hands-off” relationship with underwriters, because each organisation needs to set a timeline of major renewal milestones that is regularly reviewed, and remain flexible and open to possible changes in direction.

“In a market where there is a shrinking number of insurance carriers and capacity, those that are willing to work with and build relationships with selected insurers will win out in the longer term,” the WTW report says.