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Insurance and risk overview for Offshore wind farmsThursday, 24 January 2019
Aon Risk Solutions | Global Power Specialty
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Agenda
Aon’s involvement in offshore wind
Typical offshore wind insurance program
Implications of debt finance
Key risk considerations
Claims overview from Europe
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Market leading capabilities
No.1
>16,000
MWof offshore wind
project experience
75%of all projects in
operation or under
construction
Settled
300offshore wind
claims
GBP160million
of claims recoveries
Debt financed
&balance
sheet JV
projects
Dedicatedoffshore wind
broking team in
the international
insurancemarket
Dedicated
claims
specialists
Insurance broker for
offshore wind
In-houserisk engineering
specialists
High
diversityof offshore wind
turbines ranging
from 2MW to
9.5MW
Extensiveplacementexperience
of the world’s
largest offshore
wind turbines
At the forefront
of innovation
including
foundation
design
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Insurance market – offshore market overview
▪ EUROPE - GENERAL
▪ Prolonged ‘soft’ market conditions, pricing, cover and deductibles all to benefit of client between 2012-17, exaggerated for offshore wind
▪ General hardening of conditions over last 18 months – claims situation worsening
▪ Key trend – construction not profitable, operation
▪ PREDICTED - ASIA
▪ Will benefit from European experience and competition
▪ Expect loading from European insurers for new country developments, c. 10-15%
▪ Expect further loading for natural catastrophe exposure, c. 25%
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Implications of debt finance on insurance design
Higher loss
limits
Longer periods
of cover
preferred to
increase cost
certainty
Full
Contingent
Business
Interruption
coverage
Delay in
start-up and
business
interruption
coverage
– obligatory
Design cover
for turbines
dependent on
breadth &
robustness of
warranty
Lenders
Insurance
Endorsements
Full deisgn
cover for
Balance of
Plant
Lower
deductibles
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Owner Controlled Insurance Strategy
• A proven approach covering in
excess of 18GW+ of offshore wind
farms being built or operating;
• Bespoke and broad offshore wind
wording, well tested by paying in
excess of USD 350M of claims to
date
• Accepted and expected by
international lenders, insurers,
contractors and suppliers;
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Developing a bankable insurance strategy
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What's covered?
▪ Physical damage to project assets
▪ Revenue lost due to resultant delay
▪ Transportation through to installation and
ongoing operation
▪ Revenue loss due to key installation equipment
damaged on site
▪ All Parties agreed under contract
▪ Third party property damage (TPL)
▪ Design defect - LEG 2 vs. LEG 3
What's not covered?
▪ Non-damage
▪ Delay from schedule slippage
▪ Contractor’s plant and equip., inc. vessels
▪ Wear and tear
▪ Warranties and guarantees
▪ Assets not included in the Sum Insured
▪ Breach of the Marine Warranty Surveyor recommendations
Key Coverage Summary
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Risk considerations: Wind Turbine Generators
INSURER CONSIDERATIONS
▪ Who is the Original Equipment Manufacturer (OEM)
▪ Historical performance of turbine model
▪ If new – certification and changes from previous models, testing (length and environment)
KEY RISK
▪ Design or manufacturing issue causing damage to the wind turbine and consequential damage to the other project equipment, and significant downtime to the turbine(s) / project
INSURANCE RESPONSE
▪ LEG2 = reinstatement of consequential damage and any associated delay
OEM RESPONSE
▪ OEM response – replacement of defective part and improvement in design
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Risk considerations: Contractors
INSURER CONSIDERATIONS
▪ Experience, experience, experience
▪ Previous issues on other projects, lessons learned
▪ Marine Warranty Surveyor – who, scope and overall role
KEY RISK
▪ Inexperience of contractors leads to significant delay in the project, resulting in a delay to anticipated revenue
INSURANCE RESPONSE
▪ If contractors cause damage, the project insurance policy will respond to any delay as a result
CONTRACTOR RESPONSE
▪ If no damage is caused, project needs to make contractors contractually responsible for the delays caused
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Risk considerations: Cables
INSURER CONSIDERATIONS
▪ Main cause of insurance losses and delays
▪ Experience of cable supplier and contractor
▪ Proposed methodology, role of Marine Warranty Surveyor
KEY RISK
▪ Damage during manufacture, transportation or installation, resulting in damage and / or delay
INSURANCE RESPONSE
▪ If cable is damaged, the project insurance policy will respond to any delay as a result
CONTRACTOR RESPONSE
▪ If no damage is caused, project needs to make contractors contractually responsible for the delays caused
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Risk considerations: Natural Catastrophes
INSURER CONSIDERATIONS
▪ Location of project and exposure to natural catastrophe exposures – e.g. Typhoon risk in Taiwan
▪ Design parameters of turbine, cables and foundations –suitability for location and exposure
▪ Mitigation measures in place when there is an imminent threat
▪ Construction schedule which manages factors in anticipated weather seasons
KEY RISK
▪ Catastrophe event causing major damage and outage / delay to the project. Equipment does not respond as per manufacturers guidelines
INSURANCE RESPONSE
▪ Insurance policy will respond but subject to an increased project deductible (often including co-insurance for project) and potentially to a reduced limit of indemnity
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Construction claims
13
143
9
34
34
3
51
2
8
21
78
CAR claims 2013 - 2018
Blade
Buoy
Contractors Tools
Export Cable
Foundations
Gearbox
Inter-array Cable
Liability
Nacelle
Substation
Transformer
Vessel
Row Labels Count of INCURRED
Blade 14
Buoy 3
Contractors Tools 9
Export Cable 34
Foundations 34
Gearbox 3
Inter-array Cable 51
Liability 2
Nacelle 8
Substation 21
Transformer 7
Vessel 8
Grand Total 194
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Construction claims
14
930,000 07,295,000
57,100,000
71,300,000
300,000
46,650,000
1,000,000
3,000,00019,480,000
800,000 34,000,000
CAR (EUR - 2013 to 2018)
Blade
Buoy
Contractors Tools
Export Cable
Foundations
Gearbox
Inter-array Cable
Liability
Nacelle
Substation
Transformer
Vessel
Row Labels Sum of Total
Blade 930,000
Buoy 0
Contractors Tools 7,295,000
Export Cable 57,100,000
Foundations 71,300,000
Gearbox 300,000
Inter-array Cable 46,650,000
Liability 1,000,000
Nacelle 3,000,000
Substation 19,480,000
Transformer 800,000
Vessel 34,000,000
Grand Total 241,855,000
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Operating claims
15
9 2
21
317
7
3
1 3
8
OAR Claims 2013 - 2018
Blade
Buoy
Export Cable
Foundations
Gearbox
Inter-array Cable
Main Bearing
Nacelle
Substation
Row Labels Count of INCURRED
Blade 9
Buoy 2
Export Cable 21
Foundations 3
Gearbox 17
Inter-array Cable 7
Main Bearing 3
Nacelle 1
Substation 3
Transformer 8
Grand Total 74
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Operating claims
16
1,380,00026,000
48,200,0000
1,335,000
19,260,000
0 00 700,000
OAR (EUR - 2013 - 2018)
Blade
Buoy
Export Cable
Foundations
Gearbox
Inter-array Cable
Main Bearing
Nacelle
Substation
Transformer
Row Labels Sum of Total
Blade 1,380,000
Buoy 26,000
Export Cable 48,200,000
Foundations 0
Gearbox 1,335,000
Inter-array Cable 19,260,000
Main Bearing 0
Nacelle 0
Substation 0
Transformer 700,000
Grand Total 70,901,000
Aon Risk Solutions | Global Power Specialty
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Aon UK Limited is authorised and regulated by the Financial Conduct Authority. 17