Allianz Commercial tracks rise in emerging risks from offshore wind

Developers and insurers of offshore wind projects face an increasing number of emerging risks as the sector braces for a period of rapid growth, according to Allianz Commercial. Publishing a report on the opportunities for growth and risk trends in the offshore wind sector, Allianz Commercial says bigger wind turbines and new technology are increasing exposures. At the same time, the speed and scale of offshore wind farms is creating new risks. These include changes to exposure from weather and natural catastrophe, as developments expand into new territories, and pressure on supply chains for materials in a high inflation economy. “With new technological approaches and an increase in turbine size comes a corresponding increase in risk,” says Dr Wei Zhang, senior risk consultant, natural resources at Allianz Commercial. “We are closely monitoring the many innovations in the offshore wind industry, which include prototypical technologies, pilot projects and evolving standardisation. These new and unproven technologies often come with a lack of technical maturity and data available.” Allianz Commercial says it falls on insurers and underwriters to engage with clients in the early stages of projects to understand exposures and emerging risks. “Emerging risks need to be explored, too, as developers prepare for widescale deployment of offshore wind around the globe,” says Anthony Vassallo, global head of natural resources at Allianz Commercial. “The size of turbines is ever increasing, wind farms are moving further out into harsher marine environments where they are more exposed to extreme weather, and technological innovation is constantly progressing. Navigating biodiversity issues in coastal communities will also become more important as demand for ocean space is set to increase fivefold by 2050.” Analysis of insurance claims data reveals damage to cables is the leading cause of loss in the offshore wind market, followed by turbine failure. Allianz Commercial said 53% of offshore wind claims between 2014 and 2020 from Germany and Central Eastern Europe were driven by cable damage, including the loss of cables in transport and bending during installation, followed by turbine failure at 20%. “Cable losses have incurred multi-million-dollar losses in offshore wind as cable failure can potentially put a whole network of turbines out of commission,” Allianz Commercial says. Adam Reed, global leader offshore renewables and upstream energy at Allianz Commercial, explains: “Contractors need to provide assurance they have the required expertise to remedy incidents and that they can source replacement components quickly in order to contain losses incurred during downtime.” “From an underwriting perspective, with subsea cabling work, insurers pay close attention to the type of cabling used, the kind of vessels involved, the communication between client and contractor, and how often qualified risk engineers will make site visits to oversee proceedings,” he adds. Reed says projected growth in the offshore wind industry is putting pressure on the supply chain. “The scale and scope of the global offshore wind roll-out is epic. It requires the expansion of manufacturing footprint, port facilities and infrastructure. And it needs to be fast-tracked by all stakeholders in a joint effort – financial institutions, corporates and governments,” he says. A sudden increase in costs has halted some wind projects recently, as the industry takes a hit from inflation, rising interest rates, higher costs of materials and geopolitical uncertainty, Allianz Commercial says. China has now overtaken Europe as the world’s largest market for offshore wind installation, the report says. Half of the world’s offshore wind installations are expected to be in China this year. While 8.8GW of new offshore wind capacity was added to the grid in 2022 to total 64.2GW, this is projected to increase to 380GW worldwide over the next ten years, the Global Wind Energy Council says. As the market expands beyond Europe, offshore wind farms in new territories pose different exposure to natural catastrophes. “On the east coast of the US or Taiwan, for example, wind speeds and wave action will be much more significant. It remains to be seen whether climate change will heighten the risk, as rising sea surface temperatures can intensify the strength of hurricanes,” explains Reed. At the same time, growth of projects worldwide underlines the availability of specialist vessels and a fleet that goes beyond Europe, the report says. Allianz Commercial has tracked a rise in collisions between vessels and turbines in recent years, which could increase given the number of wind turbines due to be installed in the North Sea before 2030.

Allianz Commercial tracks rise in emerging risks from offshore wind

Insurers urged to engage with developers to understand exposures

Want to read this article?

Read Next

Report highlights need to identify, assess and mitigate nature-related risks

New global head of ART at Allianz Global Corporate & Specialty

Amazon loses appeal against €764m GDPR fine

Ransomware attacks spike to record high in February

US P&C insurers report significant improvements in 2024

Report highlights need to identify, assess and mitigate nature-related risks

New global head of ART at Allianz Global Corporate & Specialty

Amazon loses appeal against €764m GDPR fine

Ransomware attacks spike to record high in February

US P&C insurers report significant improvements in 2024

Keep yourself informed

Sign up for Commercial Risk’s newsletters

Want to read this article?

Read Next

Report highlights need to identify, assess and mitigate nature-related risks

New global head of ART at Allianz Global Corporate & Specialty

Amazon loses appeal against €764m GDPR fine

Ransomware attacks spike to record high in February

US P&C insurers report significant improvements in 2024

Related Articles

Keep yourself informed

Sign up for Commercial Risk’s newsletters