19.09.2013
Key Positions

Energy Transition and Climate Protection

The German energy transition (“Energiewende”) towards an increased use of sources of renewable energy currently is the most important economic and technical project in Germany. Insurers have dealt extensively for many years with renewable energies.

Insurers facilitate the expansion of renewable energies by providing insurance expertise and innovative insurance solutions. Insuring a wind park located in the stormy North Sea many kilometers off the coast is not a trivial matter. The risks posed by storm, saltwater and maritime shipping are difficult to anticipate. Wind turbines often cannot be repaired in months due to bad weather conditions. The financial damage associated with a (long-term) shutdown of an entire wind park is enormous. Such potential claims not only increase the cost of insurance protection but could render insufficient the medium-term insurance capacities available to insure all planned wind parks. This would call into question the further realisation of offshore construction projects in Germany. Risk-mitigating factors must therefore be taken into account from the outset when planning and constructing wind parks.

Download

Insurers not only support the energy transition as risk bearers but, provided the framework conditions are suitable, as investors in energy parks and infrastructure projects. Insurers have always been interested in sustainable long-term investments in order to meet their long-term life insurance obligations. Through investments in renewable energies, predictable income can be earned through quantifiable sales volumes and minimum price guarantees. Insurers can thus provide part of the capital needed for the transformation of energy supply and the expansion of energy grids. however, there are currently still legal and regulatory obstacles, limiting the commitment of insurers in this segment. If legislators removed these obstacles, the insurance industry could contribute even more significantly to the energy transition.

Beyond the energy transition, climate change remains one of the greatest challenges of our time. Above all, claim insurers and reinsurers are affected by the financial consequences of climate change. Last year, natural disasters caused global damage of around 160 billion USD, 50 billion USD of which were caused in and around New York by hurricane sandy alone. Also in Germany loss events are also increasing in number and dimension. Many Germans are neither aware of their risks nor the possibilities of insurance. Almost all real estate in Germany is insured against natural hazard. specialized solutions only have to be found for approximately one per cent of buildings situated in high-risk locations. here, damage prevention is the key to risk assurance and risk transfer. The German insurance industry has conducted a series of information campaigns together with federal states to raise awareness of the necessity of insurance against natural hazard.

Our Positions
Establish new categories of risk for investments in infrastructure and renewable energy
Solvency II, the future regulatory framework of the insurance industry requires disproportionately high capital requirements for investments in infrastructure and renewable energies. For instance, investments in wind parks are included in the same category as hedge even though these investments involve significantly higher financial risks. High supervisory capital requirements regarding investments in infrastructure and renewable energies make these investments significantly more expensive and unprofitable. Therefore, separate new risk categories should be established for investments in renewable energies and infrastructure. The new risk categories should take into account the low risk profile of these investments and require less capital.
Ease the provisions on unbundling
Current unbundling requirements are leading to a strict separation of energy production and transportation. The aim of the regulations was to end and prevent excessive market power among of few energy groups. Due to these unbundling requirements, insurance companies are faced with a limited choice of two options: they can only invest either in energy generation or in grid expansion. An easing of the unbundling requirements would make it possible to invest throughout the value-added chain.
Risk minimization measures as a planning principle for offshore wind parks
Offshore wind parks must be planned from the outset with view to avoiding a high frequency of loss events as well as keeping resulting damages low. Only then sufficient insurance protection can be provided at reasonable prices. The “North Sea Offshore Network Plan” should consequently include risk minimizing aspects. Necessary measures might include: laying power cables at sufficient depths on the sea bed, having several connection points for the wind parks to the on-land power grids so that the interruption of one connection will not lead to the outage of the entire wind park as well as spatial separation of converter platforms so that a single damage event cannot destroy major parts of the energy generation system.
Raise awareness – create a nationwide natural risks platform
The German insurance industry has developed a public natural risk information system called “ZÜRS”. The system is already implemented in the federal states of Lower saxony and Saxony, with more federal states to follow soon. With only a mouse click, every German can check the degree to which their home is endangered by floods, lightning or storm. German insurers are committed to a uniform, transparent and easily accessible nationwide information system on natural risks after the example of the Austrian model which is sponsored jointly by the Federal Government, the federal states and the insurance industry.
Carry out nationwide natural risk awareness campaigns
The natural risk awareness campaigns carried out in cooperation between the insurance industry and a series of federal states have proven beneficial. The previous low level of awareness about growing natural risks has been raised, with more people learning about the possibilities of insurance. Awareness raising campaigns on natural risks should be introduced nationwide across Germany.