A Rush to Excellent Coverage
In gathering testimonials to crown the Power Brokers every year, R&I staff ask specifically for recent accomplishments, reminding references that, at this level, every broker should have a solid understanding of your industry and carriers, and deliver attentive service. To that one risk manager retorted, “Actually, not true!”
Aon’s Patrick Drake became the client’s new P&C broker in May 2015, as the utility became a separate entity from the previous overall municipal authority. The subdivision became necessary out of severe economic distress for the municipality, so a dire fiscal regime loomed over what would already have been a steep challenge.
As the new authority was a regional entity comprising several counties, there were the complications of multiple jurisdictions. And then to take this whole new creature to insurance markets well aware of the region’s circumstances.
“There was no familiarity with our industry or with prior carriers,” said the risk manager. “We were essentially a near-billion-dollar start-up. Patrick was responsible for aggressively marketing a property program for us with a policy effective date of December 2015. He had to learn our industry, find new carriers, facilitate tours on a program with a $6.7 billion total insured value, improve rate and pricing, enhance coverage, and effectively fold all exposures into one program. He accomplished every task: significant cost savings, substantial coverage enhancements, and coverage for all our exposures.”
Harnessing the Sun
Sun and shadow are apt descriptors for the solar energy business: growth potential is glaringly bright, but the complexities of government subsidies and steep conditions imposed by lenders cast a heavy umber.
“Our firm is a challenge from an insurance position,” said the associate general counsel for one client of Chris Lang’s.
“With more than 7,000 rooftop solar installations, we are responsible for the largest and densest concentration of photovoltaic solar outside of Hawaii. But our financing partners and investors impose strong insurance requirements on every aspect of our business. Chris not only bound coverage at reasonable rates, but managed successful renewal of an ever-growing portfolio.”
While there are a few major players in solar, many operators remain small. “In 2015, Chris helped connect my growing design/build solar firm to large investment groups,” said the vice president of a client company.
“He helped us insure a range of new solar installation equipment, he provided a builder’s risk option for our finance partners that met a complicated three-party agreement, introduced us to new business opportunities, and connected [us] with a legal adviser that has structured the majority of our deals.”
The president of one firm credits Lang with identifying developing coverage for his company, and then securing “a reasonable rate.”
Pulling All the Levers
A Catch-22. A no-win situation. A client of Michael Perron’s faced exactly that situation to the second power. It had twin generating units at one facility. Normally both would operate at the same time, or one could operate while the other was being inspected or repaired. But both could not be out of service at the same time or the entire facility would go offline with dire consequences.
“We had a claim for one of the two units,” said the plant manager.
“Our previous carrier dropped us a month before renewal. The one unit could be repaired fairly easily, but that was not the most immediate problem. We could not get coverage until we could get in to inspect the second unit, but we could not take the second unit out of service to inspect it until the first one was repaired.”
By sitting down with prospective carriers, the plant manager said Perron was able to get quotes from three carriers.
“He was really pushing all the buttons and pulling all the levers. In the end we were able to bind on the last day before expiration,” the client said.
For another client, Perron was able to find a new approach to an emerging liability exposure for alternative power providers. Under some circumstances, losses have to be calculated out five years, but carriers normally hold claims open 18 months.
“We had never encountered this situation before,” said the risk analyst.
“Mike worked on a net present value calculation that enabled us to close out a claim.”
Jousting Over Windmills
If conventional energy seems ingrained in tradition and politics in the U.S., in Mexico state ownership of oil is enshrined in the constitution. Energy reform at all levels in that country has been a decades-long process, so a wind farm initiative originating north of the border is fraught with obstacles.
“Laura was critical in closing a project in Mexico, and it was complicated straight out of the gate,” said the controller of one client.
“The first part was preparing a program for the turbine-supply agreement,” said the controller.
“That had to dovetail into the requirements of the lenders backing the project. There were lots of moving parts, and it had to be done in time for the financial closing. Of course, the local policies had to be layered in, as in-country coverage is a requirement in Mexico.”
Back north of the Rio Grande, wind farms are already a major industry. As part of efforts to reduce their carbon profiles, large utilities are building and buying wind farms.
One client was involved in the sale of a very large wind farm to a very large utility.
“It was a very complex transaction, and had to be done very quickly,” said the manager.
“The acquiring utility had its own program at its own carriers and there was a great deal of back and forth. Anything we needed from Laura we got in half an hour.”
After the deal was done, Rubin then had turn around and revamp the client’s program. “We could have faced a huge increase, but she kept the change small.”
Insuring ‘The Shorts’
In a fast-growing and fast-changing market such as solar energy, the varying needs of insureds can make it seem as if standardization is just a beautiful dream.
Some brokers find commonalities and work with carriers and owners to develop policies that, if not universal, can at least find broad markets. Danny Seagraves of Willis Towers Watson did that in a policy that addresses a chronic problem in solar energy, revenue shortfall.
Clients laud him for this. “Investors have been wishing someone would do this for a long time,” said one insurance adviser.
Having shortfall coverage was helpful, but the more important element was “figuring out how to structure it,” said the president of one client company. “We have done a lot of acquisitions,” he added, noting that working the coverage into the process facilitated some transactions. He said his company experienced some “tricky” claims and substantial requirements from investors.
The client noted that even though the shortfall coverage is new, Seagraves was already making modifications, in this case arranging a high-level meeting among the client, its contractor, investors, and the underwriter. That yielded significant savings in premium and deductible.
Writing multi-year policies has also helped small clients, says the insurance adviser.
“Danny has acted like a de-facto risk manager for clients.”
Helping Hedge Solar
As an annual award, Power Broker® judging criteria has a touch of “what have you done for me lately?” One case with a definitive answer is Marsh’s Stefan Szulc, who in 2014 put together a comprehensive package in response to an RFP. But having won the business, he could hardly relax. The client firm doubled in size in 2015, meaning that existing programs had to be overhauled.
“Stefan assembled a team including property, casualty and construction expertise and won our business,” the director of finance recounted. “At our first renewal we were able to achieve substantial savings versus our prior program. Since then, our company has grown by more than 100 percent, and Stefan has responded quickly to those growing needs.”
That sort of geometric growth is the nature of the beast with renewable energy and services, meaning that the reward for hard work is more hard work.
“The best example of Stefan’s professionalism comes from helping me navigate credit risk in the ever evolving and risky market of solar energy,” said the CFO of one client.
“We had receivables exposure to a single credit in excess of $30 million and I was concerned about collection risk. Stefan helped me navigate the trade-credit insurance market to put in place an ideal hedge to our exposure. In addition, we were able to negotiate the cost of the hedge down nearly 40 percent from what was initially proposed.”
Solar panels have been a fast-changing insurance challenge since the well-publicized bankruptcy of panel manufacturer Solyndra in 2011.