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Solving the Puzzle: Renewable Energy’s Complex Business Interruption Claims

Having a seasoned adjuster who knows it all - from the equipment to industry regulations - plays a critical part in solving that puzzle.
By: | December 6, 2017 • 6 min read

Keeping renewable energy flowing can be like solving a puzzle when the pieces are always shifting. A myriad of regulations, contractual production obligations, weather fluctuations, and highly specialized equipment all make the renewable energy sector very complex.

The picture gets more complicated when a wind farm suffers a physical loss and subsequent business interruption. Fixing the property damage is one thing, but calculating and recouping business interruption losses is another.

“Calculating the business interruption impact after a loss requires deep industry knowledge and expertise in the renewable energy sector,”said Joe Slane. Slane is the Executive Vice President – Specialty Loss Group and Senior Executive General Adjuster with Engle Martin & Associates, a national independent loss adjusting and claims management firm.

Calculating Lost Income

A wind turbine loss demonstrates the many factors that impact the calculation of lost revenue after equipment failure.

Every day that a wind turbine generator remains out of service translates into decreased production and potential losses in revenue. Calculating the revenue impact is a multi-factor equation that can get complicated fast, making the need for a knowledgeable adjuster all the more imperative.

“Wind speeds and direction can change fast and can be seasonal. Operators are constantly monitoring wind speed and direction so they can facilitate adjustments to maximize power output. You have to consider many dynamics when projecting the production loss,” Slane said.

“An adjuster has to understand power generation to project megawatt hours lost over a certain period of time, during a certain part of the year.”

Joe Slane, Executive Vice President – Specialty Loss Group and Senior Executive General Adjuster

Wind farms generally keep detailed historical data on wind speed seasonality and average power output, so an experienced adjuster could project how much energy would have been produced had the damaged turbine been functioning normally.

Then it’s a matter of determining how much that power is worth.

“Renewable Energy Credits (RECs) and Production Tax Credits (PTCs) may contribute to the farm’s revenue loss, but their value could fluctuate with market demand and the amount of energy that a farm produces,” Slane said.

Properly factoring in these credits requires in-depth knowledge of the renewable energy market’s performance and industry tax regulations.

“Right now, for example, certain areas of the renewable energy market are saturated. Supply is at an all-time high in certain areas, so the value of certain RECs may be low. You have to know what these credits are worth, and how much they would have contributed to the farm’s revenue had there been no loss.”

A skilled adjuster will also understand how a wind farm’s insurance policies work and what exactly is covered.

“How does the policy define business interruption? Is there a time limit on the interruption period? Some policies have a long waiting period deductible. This could mean that if the waiting period is 60 days, any interruption losses incurred before the 60-day mark may be the responsibility of the owner,” Slane said. “A seasoned adjuster in this space should know what to look for within the policy.”

Evaluating the Time Element 

In addition to these factors, understanding the time element claim is critical.

“The time element exposure is dependent on the time it takes to assess and repair the physical damage that’s causing business interruption in the first place,” Slane said. The longer it takes to repair or replace damaged equipment and the more downtime a turbine incurs, the larger the business interruption loss could be.

In an industry like renewable energy that relies on heavy, specialized equipment, repairing damage could be a long and complex process.

“Assessing the damage alone can take up to a week. Sourcing, procuring, and installing new equipment can take several months.”

Without technical knowledge of a plant’s equipment — and the complexities of replacing it — adjusters can’t begin to assess the full scope of a business interruption claim.

“Keep in mind that blades alone are 116 feet long and longer. The blade assembly can weigh 35 tons. The nacelle alone weighs over 55 tons… and all of this sits atop a 70 ton, 200-foot tower,” Slane said. “Transporting these pieces is no easy feat. The logistics of delivery and installation are also complicated because you need cranes to lift the equipment.”

Site access and weather issues can further delay the process.

“Some wind farms are out in the middle of wide fields with no roads leading to them. Others are in the side of a mountain. It’s difficult moving cranes and cargo trucks in and out of these sites,” Slane said.

Even when all the pieces are in place, high winds, extreme cold, rain, or ice can keep a project grounded. The conditions need to be just right for installation to be done correctly and safely. All the while, the farm continues to lose out on revenue from that turbine. Adjusters need to be able to make that connection to arrive at a fair business interruption assessment.

Adjuster Expertise Is The Key To Solving The Puzzle

Navigating the complexities of a business interruption loss in renewable energy demands an adjuster who knows it all – the equipment, the weather patterns, power generation data, market fluctuations, financial impacts, industry regulations, and insurance.

“Insureds don’t want to waste time talking with an adjuster who doesn’t know their business,” Slane said.

“At Engle Martin, we can speak the lingo. RECs, PTCs, FERC — which is the Federal Energy Regulatory Commission – these acronyms are part of the everyday vocabulary,” Slane said. “If you don’t know or quickly learn the terminology and processes, you could lose credibility.”

Engle Martin’s Energy & Power Group, a subset of the company’s Specialty Loss Group, has the expertise to engage with wind farm operators and evaluate every factor of a business interruption claim. The Specialty Loss Group consists of 40 Executive General Adjusters averaging over 20 years of claims adjusting experience.

Having a true energy expert in the field benefits all parties. Carriers want to know their adjusters are experienced, accurate, and professional so they can properly measure a claim. Insureds want an adjuster who can speak their language and who understands all the components of a loss. Brokers are the go-between; they want the best services for their client, and a fair claim valuation for carriers.

“Keeping communication channels open among those parties is essential in a complex, lengthy loss,” Slane said. “Having a trusted expert at the center of the claim is critical.”

To learn more, visit: http://www.englemartin.com/.

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This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Engle Martin & Associates. The editorial staff of Risk & Insurance had no role in its preparation.




Atlanta-based Engle Martin & Associates is a leading national independent loss adjusting and claims management provider. Privately held and owner operated, the firm delivers a comprehensive line of property and casualty claims service offerings.

Insurtech

Kiss Your Annual Renewal Goodbye; On-Demand Insurance Challenges the Traditional Policy

Gig workers' unique insurance needs drive delivery of on-demand coverage.
By: | September 14, 2018 • 6 min read

The gig economy is growing. Nearly six million Americans, or 3.8 percent of the U.S. workforce, now have “contingent” work arrangements, with a further 10.6 million in categories such as independent contractors, on-call workers or temporary help agency staff and for-contract firms, often with well-known names such as Uber, Lyft and Airbnb.

Scott Walchek, founding chairman and CEO, Trōv

The number of Americans owning a drone is also increasing — one recent survey suggested as much as one in 12 of the population — sparking vigorous debate on how regulation should apply to where and when the devices operate.

Add to this other 21st century societal changes, such as consumers’ appetite for other electronic gadgets and the advent of autonomous vehicles. It’s clear that the cover offered by the annually renewable traditional insurance policy is often not fit for purpose. Helped by the sophistication of insurance technology, the response has been an expanding range of ‘on-demand’ covers.

The term ‘on-demand’ is open to various interpretations. For Scott Walchek, founding chairman and CEO of pioneering on-demand insurance platform Trōv, it’s about “giving people agency over the items they own and enabling them to turn on insurance cover whenever they want for whatever they want — often for just a single item.”

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“On-demand represents a whole new behavior and attitude towards insurance, which for years has very much been a case of ‘get it and forget it,’ ” said Walchek.

Trōv’s mobile app enables users to insure just a single item, such as a laptop, whenever they wish and to also select the period of cover required. When ready to buy insurance, they then snap a picture of the sales receipt or product code of the item they want covered.

Welcoming Trōv: A New On-Demand Arrival

While Walchek, who set up Trōv in 2012, stressed it’s a technology company and not an insurance company, it has attracted industry giants such as AXA and Munich Re as partners. Trōv began the U.S. roll-out of its on-demand personal property products this summer by launching in Arizona, having already established itself in Australia and the United Kingdom.

“Australia and the UK were great testing grounds, thanks to their single regulatory authorities,” said Walchek. “Trōv is already approved in 45 states, and we expect to complete the process in all by November.

“On-demand products have a particular appeal to millennials who love the idea of having control via their smart devices and have embraced the concept of an unbundling of experiences: 75 percent of our users are in the 18 to 35 age group.” – Scott Walchek, founding chairman and CEO, Trōv

“On-demand products have a particular appeal to millennials who love the idea of having control via their smart devices and have embraced the concept of an unbundling of experiences: 75 percent of our users are in the 18 to 35 age group,” he added.

“But a mass of tectonic societal shifts is also impacting older generations — on-demand cover fits the new ways in which they work, particularly the ‘untethered’ who aren’t always in the same workplace or using the same device. So we see on-demand going into societal lifestyle changes.”

Wooing Baby Boomers

In addition to its backing for Trōv, across the Atlantic, AXA has partnered with Insurtech start-up By Miles, launching a pay-as-you-go car insurance policy in the UK. The product is promoted as low-cost car insurance for drivers who travel no more than 140 miles per week, or 7,000 miles annually.

“Due to the growing need for these products, companies such as Marmalade — cover for learner drivers — and Cuvva — cover for part-time drivers — have also increased in popularity, and we expect to see more enter the market in the near future,” said AXA UK’s head of telematics, Katy Simpson.

Simpson confirmed that the new products’ initial appeal is to younger motorists, who are more regular users of new technology, while older drivers are warier about sharing too much personal information. However, she expects this to change as on-demand products become more prevalent.

“Looking at mileage-based insurance, such as By Miles specifically, it’s actually older generations who are most likely to save money, as the use of their vehicles tends to decline. Our job is therefore to not only create more customer-centric products but also highlight their benefits to everyone.”

Another Insurtech ready to partner with long-established names is New York-based Slice Labs, which in the UK is working with Legal & General to enter the homeshare insurance market, recently announcing that XL Catlin will use its insurance cloud services platform to create the world’s first on-demand cyber insurance solution.

“For our cyber product, we were looking for a partner on the fintech side, which dovetailed perfectly with what Slice was trying to do,” said John Coletti, head of XL Catlin’s cyber insurance team.

“The premise of selling cyber insurance to small businesses needs a platform such as that provided by Slice — we can get to customers in a discrete, seamless manner, and the partnership offers potential to open up other products.”

Slice Labs’ CEO Tim Attia added: “You can roll up on-demand cover in many different areas, ranging from contract workers to vacation rentals.

“The next leap forward will be provided by the new economy, which will create a range of new risks for on-demand insurance to respond to. McKinsey forecasts that by 2025, ecosystems will account for 30 percent of global premium revenue.

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“When you’re a start-up, you can innovate and question long-held assumptions, but you don’t have the scale that an insurer can provide,” said Attia. “Our platform works well in getting new products out to the market and is scalable.”

Slice Labs is now reviewing the emerging markets, which aren’t hampered by “old, outdated infrastructures,” and plans to test the water via a hackathon in southeast Asia.

Collaboration Vs Competition

Insurtech-insurer collaborations suggest that the industry noted the banking sector’s experience, which names the tech disruptors before deciding partnerships, made greater sense commercially.

“It’s an interesting correlation,” said Slice’s managing director for marketing, Emily Kosick.

“I believe the trend worth calling out is that the window for insurers to innovate is much shorter, thanks to the banking sector’s efforts to offer omni-channel banking, incorporating mobile devices and, more recently, intelligent assistants like Alexa for personal banking.

“Banks have bought into the value of these technology partnerships but had the benefit of consumer expectations changing slowly with them. This compares to insurers who are in an ever-increasing on-demand world where the risk is high for laggards to be left behind.”

As with fintechs in banking, Insurtechs initially focused on the retail segment, with 75 percent of business in personal lines and the remainder in the commercial segment.

“Banks have bought into the value of these technology partnerships but had the benefit of consumer expectations changing slowly with them. This compares to insurers who are in an ever-increasing on-demand world where the risk is high for laggards to be left behind.” — Emily Kosick, managing director, marketing, Slice

Those proportions may be set to change, with innovations such as digital commercial insurance brokerage Embroker’s recent launch of the first digital D&O liability insurance policy, designed for venture capital-backed tech start-ups and reinsured by Munich Re.

Embroker said coverage that formerly took weeks to obtain is now available instantly.

“We focus on three main issues in developing new digital business — what is the customer’s pain point, what is the expense ratio and does it lend itself to algorithmic underwriting?” said CEO Matt Miller. “Workers’ compensation is another obvious class of insurance that can benefit from this approach.”

Jason Griswold, co-founder and chief operating officer of Insurtech REIN, highlighted further opportunities: “I’d add a third category to personal and business lines and that’s business-to-business-to-consumer. It’s there we see the biggest opportunities for partnering with major ecosystems generating large numbers of insureds and also big volumes of data.”

For now, insurers are accommodating Insurtech disruption. Will that change?

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“Insurtechs have focused on products that regulators can understand easily and for which there is clear existing legislation, with consumer protection and insurer solvency the two issues of paramount importance,” noted Shawn Hanson, litigation partner at law firm Akin Gump.

“In time, we could see the disruptors partner with reinsurers rather than primary carriers. Another possibility is the likes of Amazon, Alphabet, Facebook and Apple, with their massive balance sheets, deciding to link up with a reinsurer,” he said.

“You can imagine one of them finding a good Insurtech and buying it, much as Amazon’s purchase of Whole Foods gave it entry into the retail sector.” &

Graham Buck is a UK-based writer and has contributed to Risk & Insurance® since 1998. He can be reached at riskletters.com.