NRI Annual Review 2024 - Flipbook - Page 8
As ever, these issues are
exacerbated by geopolitics and
con昀氀ict. Electric vehicle (EV)
supply chains, for example, are
currently being disrupted by the
Red Sea shipping crisis. Shifting
economic allegiances are also
making it harder for certain
countries to access strategic
materials. Take cobalt, a crucial
base metal used in the production
of lithium-ion batteries. As
governments move away from
fossil fuels towards renewables
and battery-based technologies,
demand for cobalt and other
precious metals is increasing.
Currently, China processes
around 80% of the world’s
cobalt. As Chinese and US trade
relations deteriorate, the US is
having to look for alternative
sources and supply partners,
with only minimal cobalt
reserves of its own.
The war in Ukraine, meanwhile,
has refocused minds on the
importance of energy security
within the ‘energy trilemma’.
The onset of the con昀氀ict triggered
an energy crisis, drove up the
cost of fossilised carbon, and
highlighted the dangers of
dependence on imported oil and
gas. In response, governments
are doubling down on energy
security and looking to expand
clean energy programmes. In
this way, the con昀氀ict could
accelerate investment in nuclear,
renewables and other lowcarbon technologies. But such
investment will only happen if
the right insurance and 昀椀nancing
mechanisms are in place.
Insuring a
low-carbon future
Insurance for new technologies
is vital if developers are to
overcome perceived new and
emerging risks in order to secure
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funding for scaled deployment.
The insurance industry is very
good at addressing risk through
innovation. For example,
innovations in parametric
insurance are enabling renewable
energy developers to better
manage the impacts of extreme
weather as well as electricity
market risks. But for new risks,
where big datasets don’t exist, the
market can be slow to respond.
When it comes to burgeoning
industries and new technologies,
insurers have to accept there
will be new issues requiring
new approaches.
For example, within the nuclear
industry, clarity is needed
around existing insurance
language for ‘nuclear’ that was
developed for 昀椀ssion and has
potential application to fusion.
There is uncertainty at national
government and international
level about the differences
between 昀椀ssion and fusion, and
in turn the insurance industry has
yet to appropriately distinguish
between the two, both from
a technological and risk
perspective. Fusion has a lower
risk pro昀椀le than nuclear 昀椀ssion,
but so far the conventional
insurance market has applied
the same liability concerns.
Fusion carries signi昀椀cant CAPEX
and has only been executed in
prototypical form, which makes
insurers cautious in their risk
transfer capacity, pricing and
policy conditions. The lack
of distinction between risk
characteristics is exacerbating this
caution and causing an impasse
within the industry.
The commercial market and
the nuclear industry therefore
urgently need to 昀椀gure out how
to approach fusion technology.
What are the appropriate price
points and limits? Will lenders
require delay in start-up (DSU)
insurance, and will that be
available at affordable rates
that won’t destroy project
economics? These are just some
of the questions that need to be
addressed as nuclear fusion
helps to drive the energy
transition forward.
Beyond conventional construction
and property insurance, there
is more that the industry
can do to support the energy
transition. Credit insurance can
support project 昀椀nancing, while
political risk insurance can help
manage the risk of expropriation
or nationalisation of assets.
Parametric insurance products
can be used to smooth the
impact of weather 昀氀uctuations on
renewable energy production or
consumer energy demand. In the
US, such products are being used
to provide certainty to CFOs keen
to invest in tax equity.
Finally, the insurance industry
needs to increase the maturity
of thinking around climate
adaptation. Insurers typically
write policies on a one-year
cycle, and very few companies
are thinking about whether
their assets will be insurable
in ten years’ time. Marsh and
the insurance industry need
to help companies understand
the way the perils are changing
and the exposure this brings to
their assets and people, as well
as the ‘risk reduction return on
investment’ that can be achieved
through resilience and adaptation
measures. In this way, we can
help companies prioritise their
activities by understanding their
‘adaptation window’, and setting
achievable actions to 2025, 2030
or later.
