Best Practice Guide to Wave
and Tidal Power Insurance
A paper by JLT Specialty Limited on behalf of RenewableUK’s
Marine Strategy Group
May 2012
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1
Contents
1. Introduction 2
2. Risk Criteria 3
3. Information Requests 4
4. Risk Mitigation 5
5. Market Characteristics 6
6. Wave and Tidal Loss/Claim Notification 9
7. Recommendations 10
8. Appendices 13
8.1. Appendix 1 - Offshore Renewable Energy Specimen Risk Matrix 14
8.2. Appendix 2 - Generic Scope of Work for the Marine Warranty Survey 19
8.3. Appendix 3 - About JLT 20
Acknowledgements:
Many thanks to the following for their input into the development of this paper:
Gcube Underwriting Ltd
MWaves limited
Braemar Adjusting
RSA Insurance Group plc.
Authors:
JLT Specialty Limited: James Green
RenewableUK: David Krohn
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1. Introduction
When it comes to risk management
and insurance for the growing but still
relatively embryonic wave and tidal
sectors, it is important to first note that
each stakeholder is learning together; the
industry, insurance brokers and insurers.
Currently, there is limited data available
for insurers to technically rate a wave
or tidal insurance submission to the
same level as other more established
renewable energy sectors and other
energy and power sectors.
It is true to say that the limited but
growing number of insurers operating in
this space at present, characterise wave
and tidal technology collectively as being
prototypical in nature. As such they will
particularly look to examine in detail
all available information in relation to a
given device and/or project proposal that
is submitted to them. This particularly
cautious approach by insurers to wave
and tidal largely stems from the fact that
early devices/projects suffered a number
of losses and claims, some of which it is
thought may not have materialised had
further testing taken place. In essence,
insurers do not typically want to insure
“trade risks” pertaining to the research
and development of any embryonic
industry.
However, it is not all “doom and gloom”
and several leading insurers positively
encourage early engagement with wave
and tidal manufacturers, technology
suppliers, contractors, developers and
owners. They look to assist them with
risk management whilst this technology
is being perfected, and ultimately to build
long-term business relationships. It is
fair to say that although the insurance
market at present views wave and tidal
risk exposures as challenging, they
nevertheless acknowledge the extensive,
planned growth in the medium to long-
term, and wish to support the industry in
this formative period.
In this paper JLT Speciality Limited (JLT)
a leading UK headquartered specialist
insurance broker and risk management
consultant, with expertise in wave and
tidal insurance, has looked to outline
insurers’ key information requests,
the key underwriting considerations
impacting insurance premiums, and
positive risk differentiators that insurers
look for when analysing any wave and
tidal device and/or project proposal.
This paper also includes helpful risk
management tools and best practice
guidelines (e.g. loss/claim notification) to
assist industry practitioners.
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2. Risk Criteria
The typical key losses whether insurable
or not emanating from wave and tidal
devices/projects are as follows:
Insurers tend to focus on the following
risk criteria that can broadly be grouped
under the following three headings:
1. The insured’s profile
(manufacturers/technology
supplier, contractor, developer,
owner):
• Curriculum Vitae – What relevant
experience does the insured and its
Project Team possess, how credible
are they?
• Balance sheet – What is the financial
strength of the Insured?
– Warranties and Maintenance
contracts – What package is being
offered?
• Contractors/Sub-Contractors track
record – It should be noted that
insurers capture loss statistics on
various construction and maintenance
contractor performance and premiums
will reflect their level of experience and
track/loss record.
2. The deployment and
maintenance of the technology:
• Testing – how much testing has been
performed? For instance with wind
turbines the general rule of thumb is
that once a device has exhibited 8,000
successful operating hours, it is no
longer viewed as prototypical. Leading
insurers have advised that more
than 8,000 hours would typically be
required for wave and tidal equipment.
• How easy is it to repair or replace the
device?
• What are the costs of repair and
replacement?
• The types of specialist vessels are
required to deploy, install and maintain
the technology – What is the suitability/
availability of the vessel(s)?
• Spares strategy – How readily can
spares be sourced? Currently, most
manufacturers are building devices
to order for a particular location and
therefore a significant pool of spares
are unlikely to be readily available.
3. Location:
• How suitable is the device to the
intended location? Are there any
test results available for the intended
device and location combination?
• How limited are the weather/
tide windows – particularly for
maintenance?
• How far offshore is the device and how
far does generated power need to be
exported?
• Any location specific environmental
concerns.
In addition, it should be noted that
insurers currently find the potential
liabilities for wave and tidal difficult to
quantify.
Loss Description Wave Tidal
Marine collision √
Blade damage – foreign object ingestion and stress failures √
Cable drag √ √
Cable laying - at the moment this is not so much of an issue because
most devices are currently connected to cables supplied by The European
Marine Energy Centre (EMEC) Ltd. However, going forwards cable laying
during the construction phase of larger commercial project developments
will be a key insurer focus area, particularly as such losses have been
frequent in the construction phase of offshore wind developments
√ √
Mechanical and electrical breakdown √ √
Table 1.Typical Wave and Tidal losses:
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Table 2. Example Wave and Tidal Device/Project Insurance Proposal Form Questions:
3. Information Requests
In terms of collecting key rating criteria
insurers expect the insured to complete
a specialist proposal form, and working
with the appointed specialist insurance
broker submit this proposal form and any
other requested project information.
Below we have outlined the specific
information requirements insurers require.
The more relevant the risk information
an insured is able to supply, the greater
the understanding of risk the insurers will
have. This should directly translate into a
more refined insurance quotation.
3.1. Proposal Forms
Below is an extract from a wave and tidal
proposal form issued by the renewable
energy focused Lloyd’s of London
Underwriting Agent - GCube Underwriting
Limited. N.B. Other leading wave and
tidal insurers will issue their own proposal
forms which are broadly comparable.
3.2. Contractual Risk Review
In addition to completing the necessary
insurer proposal forms, provision of
insurance-related contractual review
and advice of the project’s contractual
conditions, is a fundamental part of the
pre-insurance placement information
gathering process. This is a service that
an experienced wave and tidal insurance
broker should provide on behalf of their
client.
Historically, JLT have found that the
greatest benefit to our clients is derived
when we have been involved in the early
drafting of the risk and insurance clauses
contained within the various project
contracts. This early involvement has led
to striking a good balance of risk sharing
between the contracting parties, and the
structuring of an effective and economic
insurance placement that best serves all
project parties.
The following is the list of project
documentation JLT ask for when
conducting contractual risk review on
behalf of a wave and tidal client:
• Regulator development zone/lease
contracts
• Any Special Purpose Vehicle (SPV)/
Joint Venture/Consortium contracts
• Power Purchase Agreement (PPA),
Off-take agreements
• EPC contracts
• Technology Supply and Balance of
Plant Agreements
• Lenders Clauses and Bond Wordings
(if applicable)
• Operations and Maintenance (O&M)
Contract.
1. Full Details of the design/build of the technology (including safety mechanisms, how
will the device be illuminated once in the water (i.e. flashing light on top, warning siren,
marked on admiralty charts etc) and any other warning systems when installed).
2. Details of the Original Equipment Manufacturer (OEM) manufacturing strategy
3. Have there been any previous sea trials of this device, if so what was the outcome
4. The sum to be insured - which should cater for all costs to reinstate the technology plus
all costs involved in transit, installation, vessel charges, divers (if applicable) and debris
removal costs
5. Details of the Project location including distance from shore, depth, maritime traffic
survey and confirmation that the relevant authorities will be alerted
6. Details of the cable laying process (i.e. whether this is on the seabed or drilled under the
bedrock), who the cable manufacturer is and what the exact cable installation method is
to be, inclusive of vessels
7. Details of how the device will be secured to the seabed
8. Details of any Navigational Risk Assessments carried out/to be carried out
9. Details/intervals of frequency that the technology will be in the water in any twelve month
period
10. Details of the installation and testing & commissioning strategy and period including
method statement and Gantt chart
11. Details concerning use and type of vessels and divers
12. Details on who will carry out the installation and do they have Contractors All Risks
insurance and Public Liability insurance
13. Details of the contract terms agreed for the installation
14. Lead times for vessels and or divers in the event of damage.
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4. Risk Mitigation
The risk mitigation measures outlined
in this section follow a common sense
approach. Insurers will always look
favourably on those wave and tidal
devices and/or projects that look to
positively differentiate themselves from
the rest of their peer group, in terms of
lower risk exposures. Therefore, it is
important to evidence to insurers those
steps that have been taken to identify
and manage any risks with a given device
and/or project. Successful risk mitigation
steps include:
• It has already been mentioned above
that an important risk management
step is pre-insurance placement
contractual risk review, undertaken
by closely working together with an
experienced insurance broker
• The clients that are successful with
risk management tend to embrace/
adopt both a senior management
“top-down” and a project team
“bottom-up” risk management ethos
(admittedly this can be more difficult to
adopt if an organisation is working in a
Joint Venture or part of a Consortium).
In terms of practical risk management
tools it is a good idea for a client
to complete and show continual
evidence of a regularly updated risk
matrix. A generic offshore energy risk
matrix has been included at the end
of this document under section 8.1.
Appendix 1 - Offshore Renewable
Energy Specimen Risk Matrix
• Leading insurers will utilise their own
in-house engineering expertise as well
as consult external specialist marine
engineering consultants, e.g. Mwaves
Ltd, LOC Marine & Engineering
Consultants, GL Noble Denton, PMSS,
BVG Associates etc, when technically
reviewing a wave and tidal insurance
proposal. Therefore, it is important for
a device/project team to demonstrate
that they have carried out their own
studies (in-house and/or by engaging
with a credible external engineering
consultant), as this builds credibility
of the device/project team and the
technology they are deploying in the
eyes of insurers.
However, it should be noted that in
spite of the engineering studies carried
out by the device/project team and
their own appointed consultants,
leading insurers often like to appoint
a risk engineering consultant they
have a long-standing relationship
with, to review the device’s and/or
project’s technical details. The good
news is that typically the cost of this
appointment is borne in full by the
insurance market.
Furthermore, in terms of risk
engineering it should be noted that
experienced insurance brokers
will also have their own in-house
risk engineers or close links with
independent risk engineers that
can assist with device and/or project
risk mitigation, and working with the
appointed insurance broker present the
device and/or project risk exposures in
the best possible light to insurers.
Lastly, a manufacturer/technology
supplier should expect leading
insurers’ appointed engineers (in-
house or external) to request to visit
their manufacturing facilities and
discuss technical details with their
own engineers/technical staff.
• Following on from the last point
insurers also wish to see that the
technology being deployed possesses
the appropriate industry recognised
accreditations e.g. Det Norske Veritas
(DNV), Germanischer Lloyd (GL)
Garrard Hassan etc.
• Insurers will also want to see detailed
information on the experience
and track record of device’s and/
or project’s construction and on-
going maintenance contractors and
sub-contractors. This is a premium
rating factor that is increasingly being
focused upon by insurers.
• Insurers will also require a wave
and tidal client to have appointed
a credible marine warranty
surveyor in advance of the offshore
installation start date; in fact they
will not be willing to bind cover for
the construction phase until this
consultant is in place, e.g. Mwaves
Ltd, LOC Marine & Engineering
Consultants, GL Noble Denton.
A table outlining all key actions
typically carried out by a Marine
Warranty Surveyor can be found under
8.2. Appendix 2 - Generic Scope
of Work for the Marine Warranty
Survey.
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5. Insurance Market Characteristics
There are a limited but growing number of
insurers willing to underwrite wave and tidal
business. In this section we have outlined:
• The suite of corporate and project
specific insurance products available
• The unique characteristics and
challenges of this insurance market
• Likely evolution of risk mitigation and
insurance transfer requirements for the
different key stakeholders
• A list of those insurers that will
underwrite this business.
5.1. Wave and Tidal Insurance
Product Requirements
Exact insurance requirements will depend
on whether the insured is a wave and
tidal manufacturer/technology supplier,
contractor, developer, owner or financier.
Corporate insurances
There are various corporate insurance
covers that wave and tidal companies
will need to consider purchasing,
with some of these being compulsory
insurances:
• Directors & Officers (D&O) insurance
• Offshore Employers Liability (OEL)
• Professional Indemnity (PI) insurance
– for anyone who is advising on the
design of the device/project
Core project specific construction,
operational and liability insurances
– Construction All Risks (CAR) – scope
of insurance can cover the following
activities, but are not limited to:
Procurement, construction, fabrication,
load out, loading/unloading,
transportation by land, sea or air
(including call(s) at port(s) or place(s)
as may be required), transhipment,
storage, towage, mating, pile driving,
installation, burying, hook-up,
connection and/or tie-in operations,
testing and commissioning, existence,
initial operations and maintenance,
project studies, engineering, design,
project management, testing,
trials, cable-laying, trenching, and
commissioning. Also covers removal of
wreck in the case of a total loss
• Delay in Start Up (if Insurers will offer
it) – Indemnifies against device and/
or project owner’s advanced loss of
profits caused by a valid Physical
Damage trigger under the CAR policy
which delays device and/or project
completion
• Marine Transit and Marine Delay
in Start Up - analysis of when the
technology supplier’s cargo policy
ends and the developer’s/owner’s
begin is critical here.
• Operational All Risks – scope of
insurance covering Physical Damage
on an All Risks basis
• Business Interruption (if insurers will
offer it) – Looks to indemnify against
loss of revenue stemming from
Business Interruption caused by a
valid Physical Damage trigger under
the Operational All Risks Material
Damage policy
• Construction and Operational Third
Party Liability (TPL). EMEC currently
require a GBP10m TPL limit and The
Crown Estate currently require a
minimum GBP25m TPL limit for UK
wave and tidal developmental zones.
As projects become larger it could be
the case that larger TPL limits will need
to be purchased, as has been the case
with several of the larger UK offshore
wind farm developments. Key TPL
risk exposures that would necessitate
higher limits include; marine collision,
cable/pipeline crossings, pollution etc.
Ancillary project specific construction,
operational and liability insurances
• Marine Protection and Indemnity (P&I)
– depending on the arrangements with
vessel charterers
• Terrorism
• Performance Bonding and Credit and
Political Risk.
5.2. Wave and Tidal Insurance
Market Characteristics/Challenges
As an embryonic insurance market
there are unique characteristics and
challenges of this insurance market
that differ from other renewable energy/
power/energy sectors and these are
set out below. Partnering with a leading
insurance broker that understands these
sectors is crucial, as they will be able
to challenge insurers’ positions and
terms offered in relation to the insurance
challenges discussed below:
• Due to prototypical technology and
the complexities of installing and
maintaining offshore assets the
insurers in this market are typically
reluctant to offer a 100% line i.e. fully
insure full replacement values and third
party liabilities associated with a given
device and/or a project. Therefore,
insurers work together on a syndicated
basis to collectively insure these
assets, even for the smaller demo
devices and/or projects.
• Currently insurers are reluctant to
offer Delay in Start-Up and Business
Interruption cover for wave and
tidal devices/projects. This poses a
challenge particularly if lenders are
involved as they will typically stipulate
that these revenue income covers be
purchased, if available in the market
place.
• Defect Exclusions and technology
Series Losses Clauses are currently
narrower than those offered by
insurers for offshore wind farms for
example, as insurers look to exert
greater control on the quantum of
any potential losses arising from
prototypical technology.
• To the best of JLT’s knowledge
insurers will not currently provide
Mechanical and/or Electrical
Breakdown coverage for wave and
tidal during either the testing and
commissioning and operational
phases, with the core coverage offered
being Material Damage and Third Party
Liability.
• A specific nuance of the wave and
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tidal insurance market is that unlike
offshore wind where only dedicated
renewable energy and offshore energy
insurers will insure these risks; with
wave and tidal generation some
dedicated marine insurers also look to
insure this business. Indeed, currently
the Policy Wordings used for wave
and tidal are an amalgamation of
Offshore Wind and Marine Wordings.
In the future it is JLT’s view that more
specific and appropriate wordings
will be developed for wave and tidal
generation risks.
• Looking forward, as more wave and
tidal devices are commercialised and
larger projects are commissioned, it is
likely that the same shift of insurance
buying control that has occurred in
offshore wind will also materialise in
the wave and tidal sectors too.
5.3. Likely Wave and Tidal Risk
and Insurance Evolution
In the early days of offshore wind the
wind technology supplier/the lead
contractor (often the same entity)
tended to lead the insurance purchase
on a turn-key basis. However, as the
developers/owners became more
comfortable with deploying and
maintaining this technology, they
typically started to control the insurance
under an Owner Controlled Insurance
Programme (OCIP).
This shift has mainly been driven by
lenders who prefer the project owner(s)
to be in control of the project insurances,
as they can step-in and assume the
rights of the owners in the event of
default under the lending requirements.
One other key reason is that under an
OCIP arrangement Delay in Start-Up
and Business Interruption cover is more
readily accessible.
In an OCIP scenario the technology
supplier/contractor and all sub-
contractors become named insureds
under one programme, albeit the lead
contractor and sub-contractors are still
responsible for maintaining adequate
Third Party Liability, Professional
Indemnity and Employer’s Liability
insurances.
These non-project owner entities can
also purchase Difference in Limits/
Conditions contract works insurance
should they feel that the owner(s)
policy does not provide them with
suitable cover e.g. they feel the
policy deductibles are too high. In
addition, lenders typically prefer OCIP
programmes because typically there
is the same panel of insurers covering
both the construction and operational
insurances, offering “seamless” cover
between these project phases.
Without an OCIP you can have the
contractor’s construction phase insurers
argue with the owner’s operational
phase insurers over which insurance
should pay a valid claim - especially if
the loss occurs around the handover
period. It should be noted however,
that although the trend in offshore wind
power has been towards OCIP insurance
programmes, technology suppliers/
contractors do still control the insurance
provision for offshore wind construction
projects. Again, similar exceptions are
likely to arise in wave and tidal insurance
evolution too. The golden rule is that
the insurance should dovetail with the
project parties contractual arrangements
and not vice versa.
Lastly, manufacturers and technology
suppliers can investigate the purchase
of; technology Performance Guarantee,
extended Series Loss cover, as well as
insurance backed Warranty solutions.
5.4. Wave and Tidal Insurers
The below table highlights those insurers
that to the best of JLT’s knowledge are
currently willing to underwrite wave and
tidal business. Please note if a device
and/or project is project financed then
lenders will typically stipulate that any
insurer utilised possesses a minimum
“bankable” A- S&P financial credit rating.
Wave and Tidal Insurers (Physical Damage and Primary Third Party Liability)
Allianz Leviathan
Ascot Renewco Mapfre
AXA Munich Re
AXIS Capital Royal & Sun Alliance (RSA)
CNA Europe SCOR
Delta Lloyd Swiss Re
GCube Underwriting Ltd* Trygg
Hannover Re Zurich
HDI Gerling
*Lloyd’s of London Underwriting Agent - Underwriting wave and tidal submissions on behalf of a
panel of Lloyd’s of London Syndicates.
Table 3. Leading Project Specific Wave and Tidal Insurers:
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6. Wave and Tidal Loss/Claim Notification
and Handling
As we have read, wave and tidal
is a relatively new risk into the
insurance market and as such there is
understandably limited experience of
handling claims in this specialist sector.
That said, the insurance market has a
much deeper pedigree in handling claims
in other such renewable technologies
(e.g. offshore wind), as well as other
sectors that demonstrate similar risk
exposures, e.g. offshore oil and gas. For
example, insurers and loss adjusters are
developing an abundance of experience
in managing and handling subsea cabling
claims, which are now unfortunately
for offshore wind farm projects are
numerous. Not forgetting that the
prompt and complete recovery from the
insurance policy is the ultimate reason for
the purchase of insurance, the following
points act as a guide to smoothing the
claims process:
• Selecting the right partners at the
outset: ensure that your broker has a
capable claims offering and consider
the claims service and track record
of your insurers when selecting them
(premium cost should not be the only
factor considered).
• Claims Protocols & Procedures:
streamline and agree the process
in advance of any claim wherein
accountability and responsibility of all
is essential.
• Policy Stress Test: Spending some
time on loss scenario exercises can
help to ensure the policy will respond
as intended and required before a real
world loss scenario actually occurs.
This will also help you understand
what your obligations under the policy
are.
• The Claims Consultant: in the event of
a major loss, you may wish to consider
the retention of a specialist claims
consultant to help you prepare and
present the claim, via the broker, to
insurers. A Claims Preparation Clause
under a wave and tidal policy offers a
positive outcome for both the insurers
and the policy holder.
• Communication: avoid late notification
by reporting any circumstance which
may give rise to a claim - it can
always be withdrawn, without penalty,
should it not materialise. Insurers,
adjusters or brokers may have some
value to add to the remedial activity.
Keep insurers or their representatives
informed of progress throughout the
claim.
• Documentation: the onus is on you
to fully document and evidence
your claim. The quality of claim
presentation and supporting
documentation is critical to successful
settlement. In the event of a potential
claim initial documentation expected
by insurers will include:
- Loss event, time, date and location
- Circumstances and reason for loss
- Description of the damaged
component with photographic /
video evidence if possible
- Estimated claim amount
- The timeframe for repair
- Witness statements.
• Evidencing the claim:
- Set up a daily reporting system so
that all relevant facts and events
are adequately reported (existing
reporting systems may not be
sufficient)
- Write down all conclusions of
discussions and action points
arising from each meeting. Leave
no room for misunderstandings or
incorrect assumptions
- Ensure that all the time spent by
company employees on claim
related activity is properly recorded,
on a daily basis, and that the details
of the work carried out by each
employee are also recorded
- Collect all appropriate
documentation to justify the scope
and method of the remedial work
carried out
- Where a number of remedial
options are considered, justify the
selected option with appropriate
documentation
- Support all costs by appropriate
documentation such as purchase
orders, work orders, invoices,
time sheets, service contacts and
material requisitions.
• The Claims Handling Strategy:
- Establish project management
team, co-opting external experts
as required, to manage the claim
process and determine/implement
claims strategy
- Organise the systematic collection
of information as it becomes
available (rather than trawling
through historic files at the end of
the claim)
- Fully engage insurers and the
representatives. Seek the loss
adjuster’s agreement on key
decisions such as reinstatement
methods, mitigation expenses, time
lines etc
- Prepare best/worst case cost
estimates as soon as feasible.
Approximate figures with plenty
of contingencies are better than
nothing
- Review the potential for recovery
from third parties and assess the
impact of a recovery action on
existing contractual relationships
- Ensure that critical dates and time
limits for the notification and/or
presentation of claims are identified
and complied with
- Ensure that all documentation
passed to loss adjusters is accurate
- Communicate any problems e.g.
with suppliers, timetables, work
schedules etc to the loss adjuster
immediately as they become
apparent – so you include them in
the problem solving process.
9
7. Recommendations
In summary the key recommendations
are as follows:
• Early engagement with the insurance
industry will help to produce an
effective and “bankable” insurance
programme. This translates into the
formulation of a clear and thorough initial
presentation of relevant information
being made to insurers by the appointed
insurance broker at least 3-4 months
before construction or deployment of
a device or before any project is due
to commence. It is recommended
that an Insurance Broker with the
relevant expertise should be engaged
at a minimum of 6-12 months before
inception of an insurance programme
• Be in a position to demonstrate that
a Project Team have the relevant
expertise and experience and
are working with consultants and
contractors that are credible and
have a proven track record. Moreover,
insurers own in-house risk engineer/
preferred consultant risk engineer are
likely to want to meet with a project
team to discuss technical details
• Be in a position to demonstrate that
all the key risks have been identified
as well as document and provide
written details of risk management
strategies for dealing with those
identified risks
• Adopt a best practice claims handling
strategy, established and agreed well
in advance of an actual loss/claim
occurring.
In order to assist further in terms of
addressing the major risk and insurance
milestones for a wave and tidal device (in
this case arrangement of a construction
insurance programme), the following
outline plan has been developed (Table
3), which outlines suggested client
interaction with their insurance broker,
insurers and other risk and insurance
consultants. The outline plan starts at the
point the insurance broker is appointed
and ends when the construction
insurance programme incepts. As noted
above this plan would be executed over
the period of 3-4 months.
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Action Notes
Milestone 1. Appoint a credible and experienced insurance broker
Milestone 2. Information Gathering:
Insurance Broker to provide initial list of high level information needed
(including contracts required).
Liaise with other Joint Venture (JV)/Consortium partners, Project related
advisers and Regulators, as required, during the negotiation and drafting
of the insurance provisions in the Project contracts
Client to provide project contracts for review
Client to provide any initial underwriting information available per Insurance
Broker request
Insurance Broker to review initial information provided and highlight any
further areas of information needed
Milestone 3. Contract Review:
Insurance Broker to review each project contract provided in relation to the
risk and insurance provisions
Insurance Broker to provide Client with initial contract comments
Insurance Broker and Client meeting to review project contractual comments
if required
Insurance Broker to provide ad-hoc risk and insurance support on project
contracts as required
Insurance Broker to support Client on risk and insurance contractual
discussions as required
Insurance Broker to support Client on Lender Insurance Requirements if
applicable (documents and discussions)
Milestone 4. Insurance Programme Design and Risk Engineering:
Insurance Broker to consider Project Risks and discuss with Client as appropriate
Insurance Broker to design the construction phase insurance programme
based on project risks
Insurance Broker to discuss programme design with Client as appropriate
Insurance Broker to arrange for EML/PML Risk Engineering Assessment and
Client to engage/ appoint a Marine Warranty Surveyor
−
Working with Project Engineers and Marine Warranty Surveyors to
provide assistance with the identification of risks. This will include an
analysis denoting those risks exposures that can and cannot be insured
– Provide comment on risk matrices
– Assistance and provision of advice in connection with the risk
management programme
Insurance Broker to bring all information together in an Underwriting Report − Provide advice on tailoring an insurance programme to meet the
contractual requirements of Project contracts
– Identification of uninsured risks
– Review of insurance programme, prior to inception/renewal.
Identify material exposures and discuss appropriate method of risk
management and risk financing
Insurance Broker to provide draft insurance documentation (Slips and Wordings)
Insurance Broker’s Claims Team (and potentially external Claims Consultant)
to stress test policy wordings with likely claims scenarios
Insurance Broker to provide any view on premium budget as is required
Client to appoint a Marine Warranty Surveyor
Insurance Broker and Client meeting/presentation with leading Insurers
Milestone 5. Insurance Marketing and Placement:
Insurance Broker to market project to Insurers − Provide advice on tailoring an insurance programme to meet the
contractual requirements of Project contracts
– Identification of uninsured risks
– Review of insurance programme, prior to inception/renewal.
Identify material exposures and discuss appropriate method of risk
management and risk financing
– Preparation of risk presentations to Insurers
– Negotiation of competitive terms in the Insurance Market
– Negotiation of policy wordings
– Production of insurance quote report including a detailed analysis of
terms, cost and premium options for each class of risk
Insurance Broker review of initial insurer indications/quotes with Client − Security vetting and analysis of potential Insurers
Insurance Broker to collate insurer requests for further information/clarifications
Client to issue Insurance Broker instructions to bind
Insurance Broker to complete placement
Insurance broker to issue final insurance documentation
Table 2. Example Wave and Tidal Device/Project Insurance Proposal Form Questions:
11
8. Appendices
12
8.1. Appendix 1 - Offshore Renewable Energy
Specimen Risk Matrix
With regards to risk mitigation, the
following Risk Matrix has been compiled.
This matrix sets out in summary form
certain key insurance risks that arise
in relation to the Insurance process
in placing and servicing of a generic
offshore renewable energy project (in
this case more from the perspective of a
project owner).
A full review of contracts relating
to the project(s) will need to be
completed separately upon receipt of
all the respective contracts and relevant
documentation in order to put together a
specific client project risk matrix.
Key:
CTA = Common Terms of Agreement
O+M = Operations and Maintenance
EPC = Engineering Procurement Contractor
OEM = Original Equipment Manufacturer
Risk Issue Risk Owner Comments Mitigants
General Insurance Risks
Misrepresentation, nondisclosure
risks
All Insureds Could void insurance policy or
claim
Good quality underwriting
information and project progress
reports
Other breach of Insurance
Condition
All Insureds Could void insurance policy or
claim
All insureds need to understand
policy conditions. Referenced in
contract documents
Failure to procure insurances in
line with Project Agreements
Owner & Contractor (depends on
contract)
Could breach contracts Ensure Project Agreements are
reviewed by Broker
Insurance Premium Cost Risk Owner & Contractor Increased premium cost or
extensions in period will be
at Owner or Contractor cost
dependent upon contract
structure
Premium budget set based upon
good quality information
Insurability of Project Risk Owner & Contractor If prototypical equipment then
insurers may not wish to insure it
Obtain full support of OEM when
marketing risk
Failure of contractors to procure
correct insurances
Owner & Contractor Could breach EPC contract and
also Owner contracts (ie ban
agreements)
Contractual remedy should be
specified in EPC Contract
Failure to have “insurable” Lender
Endorsements
Owner Could breach CTA Ensure Finance Documents are
reviewed by Broker in line with
market availability
Failure to have “insurable”
Assignment Documentation
Owner Could breach CTA Ensure Finance Documents are
reviewed by Broker in line with
market availability
Failure to have a workable BLOU Owner Could breach CTA Ensure Finance Documents are
reviewed by Broker
Financial failure of Insurers
including failure to pay valid
claims and cost of replacement
Owner & Contractor Security risk of party procuring
insurance
Add Security Default Clause to
policy if available
Mid-term material change in risk All Insureds Responsibility sits with both
Contractor & Owner
Ensure monthly progress reports
are provided as well as insurer
risk information in respect of
material changes
13
Construction All Risks Insurance
Insurable Risks (Physical damage
during transportation)
As per contract but Owner or
Contractor could be responsible
to procure insurance
Does not cover all events of
damage
Refer to Insurance Policy and
review and understand how it
operates
Uninsurable Risks As per contract Not insured Contractual Risk of Loss Clause
in EPC Contract - which party
has risk of loss irrespective of
insurance cover?
Excluded Risks As per contract Excluded under insurance Contractual Risk of Loss Clause
in EPC Contract - which party
has risk of loss irrespective of
insurance cover?
Deductible Risk As per contract Not recoverable under insurance Contractual Risk of Loss Clause
in EPC Contract - which party
has risk of loss irrespective of
insurance cover?
Breach of “any one conveyance
or storage limit”
All Insureds Uninsured value above limit Ensure procedures in place to
monitor Values in storage or in
transit
Prolonged Storage Limit beyond
policy allowance
All Insureds Uninsured value above limit Ensure procedures in place to
monitor time in storage
Breach of Critical Item Separation
Warranty
All Insureds Would void insurance claim Ensure such requirement is stated
in contract and monitored by
parties
Breach of Critical Item Survey
Warranty
All Insureds Would void insurance claim Ensure such requirement is
stated in contract and monitored
by parties. Put in place
commiseration procedure to
manage surveys
Breach of other specific insurance
condition
All Insureds Could void insurance policy or
claim
Ensure such requirement is
stated in contract and monitored.
Review and understand insurance
conditions
Breach of Classification Clause
(vessel seaworthiness)
All Insureds Would void insurance claim Ensure such requirement is stated
in contract and monitored. Ensure
regime in place to monitor vessel
age
Failure to interface cargo
insurance with construction
insurance policy
All Insureds This could leave gaps in coverage Ensure policies dovetail
when placed and there is an
understanding of interface points
between transportation and
construction
Breach of other specific insurance
condition
All Insureds Could void insurance policy or
claim
Ensure such requirement is
stated in contract and conditions
understood
Defects Risks As per contract but likely to be
contractors and suppliers
Contractor would visually carry
such risk based upon risk of loss
provisions
Consider extent of cover provided
by policy and manage risk with
supplier / OEM
Defects Liability Cover
(Maintenance Cover) does
not match Contractor’s Risk
Allocation (time period and
breadth of cover)
Contractor Some elements are not insurable.
Extent of insurance cover during
warranty period will not cover all
warranty costs
Consider widest form of
“maintenance” cover
Increased Project reinstatement
cost vs. insured value (ie
reinstatement cost is greater than
original insured value)
Owner Policy Uninsured amount above limit,
application of average condition
in policy reduces loss recovery
Ensure policy is based on
reinstatement cost not just
Contract Value. No average
condition and escalation /
adjustment provision added. Also
consider actual reinstatement
value costs at inception
14
Failure to interface with cargo
policy
All Insureds This will leave gaps in coverage Ensure policies dovetail when
placed and interface points
understood
Failure to recover “vessel” hire
costs during replacement.
Contractor Additional cost exposure Include policy provisions to allow
vessel hire cost recovery under
policy
Delay Insurance Risks
Contractor responsible for delay Contractor LD’s payable under EPC contract
FM delay Owner No remedy unless PPA relief
Owner caused delay Owner May be an insurable event Otherwise no remedy unless PPA
relief
Insurable Risks (Loss of Capacity
Charge due to insured damage)
As per contract but owner
responsible to procure insurance
Insurance cover applies, but
excludes LDs recovered
LD’s payable under EPC contract
if applicable, otherwise Owner
risk. Note contractual LD are
primary to insurance
Uninsurable Risks Owner unless Contractor
responsibility
No Insurance Cover No remedy unless PPA relief,
perhaps LD’s payable under EPC
contract
Excluded Risks Owner unless Contractor
responsibility
No Insurance Cover No remedy unless PPA relief,
perhaps LD’s payable under EPC
contract
Deductible Risk Owner No insurance cover, but maybe
an LD event
LD’s payable under contract if
applicable, otherwise Owner risk
Concurrent delays As per contract Uninsurable concurrent delays
will reduce “insured delay” if the
events are concurrent
LD’s payable under EPC contract
or PPA relief if applicable
Failure to insure for correct
amount
Owner Potential to not recover total loss Ensure calculation is correct and
based upon PPA
Failure to insure for correct
Indemnity Period
Owner Potential to not recover total loss Check lead / reinstatement times
of critical items. Employ technical
consultants
Operational Risks
Insurable Risks (Physical damage
to property insured during
operational period)
As per contract but owner
responsible to procure insurance
Does not cover all events Refer to Insurance Policy. Owner
will seek recovery via EPC
warranty clauses
Uninsurable Risks As per contracts Not insured Contractual Risk of Loss Clause
and Defects Liability Clause
in EPC Contract - which party
has risk of loss irrespective of
insurance cover? There will be
uninsured elements of warranty
costs
Excluded Risks As per contracts Excluded under insurance Contractual Risk of Loss Clause
and Defects Liability Clause
- which party has risk of loss
irrespective of insurance cover?
Transfer of risk under O&M
Contract?
Deductible Risk As per contracts Not recoverable under insurance Contractual Risk of Loss Clause
- which party has risk of loss
irrespective of insurance cover?
Transfer of risk under O&M
Contract? Consider warranty
responsibility
15
Defects Risks As per contracts Contractual Risk of Loss Clause
and Defects Liability Clause
- which party has risk of loss
irrespective of insurance cover?
Transfer of risk under O&M
Contract? Consider warranty
responsibility
Warranty risk during operations Contractor Risk dependent upon warranty
clauses
Ensure warranty clauses or
limited. Ensure “defects” cover
under maintenance insurance is
wide
Operational insurer subrogation
risk against contractor warranty
Contractor Contractor not insured on
operational policy
Contractor insurance cover
would be from the construction
maintenance insurance
Increased Project reinstatement
cost vs. insured value (ie
reinstatement cost is greater than
sum insured)
Owner Policy Uninsured amount above limit,
application of average in policy
reduce recovery
Ensure policy is based on
reinstatement cost not just
Contract Value. No average
condition and escalation/
adjustment provision added. Also
consider actual reinstatement
value at inception
Business Interruption Risks
Contractor caused interruption Owner Waiver of consequential loss
under contract would be usual
Is interruption event insured?
FM delay Owner Is interruption event insured?
Is there any FM under PPA
Owner caused delay Owner Is interruption insured?
Insurable Risks (Loss of Capacity
Charge due to insured damage)
All Insureds Does not cover all events Refer to Insurance Policy
Uninsurable Risks Owner Not insured Relief under PPA?
Excluded Risks Owner Excluded under insurance Relief under PPA?
Deductible Risk Owner Not recoverable under insurance Relief under PPA?
Concurrent interruption Owner Uninsured concurrent interruption
will reduce recoverable / insured
interruption
Relief under PPA?
Failure to insure for correct
amount
Owner Potential to not recover total loss Ensure calculation is correct and
based upon PPA
Failure to insure for correct
Indemnity Period
Owner Potential to not recover total loss Check lead / reinstatement times
of critical items. Employ technical
consultants
Third Party Liability Risks
Insurable Risks (Legal liability
arising from the project / business
during the construction and
operational period)
As per contract but owner
responsible to procure insurance
Does not cover all events Refer to Insurance Policy
Uninsurable Risks As per contracts Not insured Contractual Risk of Loss Clause
and Defects Liability Clause
in EPC Contract - which party
has risk of loss irrespective of
insurance cover?
Excluded Risks As per contracts Excluded under insurance Contractual Risk of Loss Clause
and Defects Liability Clause
- which party has risk of loss
irrespective of insurance cover?
Transfer of risk under O&M
Contract?
16
Deductible Risk As per contracts Not recoverable under insurance Contractual Risk of Loss Clause
- which party has risk of loss
irrespective of insurance cover?
Transfer of risk under O&M
Contract?
Failure to insure for maximum
potential liability
Owner Potential for uninsured TPL risk Contractual Waivers? Produce
a study of maximum potential
exposure
Liability to existing property Owner Potential for uninsured TPL risk Contractual Waivers?
Risk of supplied product causing
liability
Contractor Contractor not insured under
operational TPL cover
Consider Product Liability
cover for Contractor/Supplier.
Consider Professional Indemnity
risk of design and supply.
Consider extent that construction
TPL could respond during
maintenance period
Error or omission in design or
advice
Contractor Supplier Consultants Professional Indemnity risk
excluded under TPL policy
Consider who is responsible
for risk. Consider who carries
Professional Indemnity Risk
17
8.2. Appendix 2 - Generic Scope of Work for
the Marine Warranty Survey
Generic Scope of Work for the Marine Warranty Survey of Transportation and Installation of Wave and Tidal Devices
Activity Review Review Suitability Survey Attend & Issue CoA
General
QA documents and systems X
Site specific data and location survey reports such as, environmental,
geotechnical, bathymetric, debris, obstruction and ordinance
clearance and spud can depression;
X
Weather reporting services and facilities; X
Operational windows for vessel positioning (e.g. tides/wind/waves). X
Operational windows for installation (e.g. tides/wind/waves). X
Transportation manuals including tow routes and passage plans
including safe havens
X
Weight reports X
Engineering reports & drawings X
Emergency contingencies and equipment X
Transportation
Loadout X X
Towage/Transportation X X*
Transportation vessels including tugs & barges X X
Towing Equipment X X
Transportation route and weather conditions X
Integrity of tow including stability and ballasting X
Emergency contingencies and equipment X
Installation
Positioning, jacking and preloading procedures for Jack-up barges (if
used)
X X
installation vessels including barges/jack-ups/crane vessels X X
Installation equipment including cranes, winches, power supplies, etc X
Installation and positioning procedures - vessels X
Installation and positioning procedures - equipment X
Lifting equipment X
Offshore Lifts X X
Hook-up and commissioning & project handover X
* Attend and Issue CoA for Sailaway
18
Please visit our website: www.jltgroup.
com/renewable-energy-insurance or
contact:
James Green
Renewable Energy Practice Leader
JLT Specialty Limited
Email: [email protected]
Direct Line: + 44 (0)20 7558 3900
Telephone: + 44 (0)20 7528 4000
Personal Mobile: +44 (0)7957 724 396
Facsimile: + 44 (0)20 7528 4500
6 Crutched Friars,
London, EC3N 2PH.
Lloyd’s Broker. A member of the Jardine
Lloyd Thompson Group.
8.3. Appendix 3 - About JLT
Jardine Lloyd Thompson Group Plc (JLT)
is a leading risk management adviser
and insurance and reinsurance broker.
The JLT Group is quoted on the London
Stock Exchange, is in the FTSE 250,
and is the largest European company
providing these services globally. JLT
operates more than 100 offices in over
36 countries and employs over 6,700
staff. Our global revenue for 2010 was
GBP 746 Million.
It is not only our size that makes us the
partner of choice for our clients, who
include some of the world’s largest
corporations; it is also the quality,
availability and professionalism of our
people and services. Key factors in our
success are focus and teamwork – we
only operate in areas where we are, or
can become, a market leader and we
positively encourage teamwork across
the whole Group. We are driven by our
Clients’ needs and strive to exceed their
expectations at all times.
JLT Specialty Limited
JLT Specialty is the largest business
within the Jardine Lloyd Thompson
Group and focuses specifically
on specialty lines business e.g.
renewable energy. Based in London,
and throughout the world, we are
an experienced team of insurance
professionals who obtain results for our
Clients. With over 1,000 employees and
a 2010 turnover of GBP 171 Million, we
are big enough to complete the largest
and most complex transactions, but yet
are still agile enough to give every client,
every project and every relationship
senior level attention. Our people have
the knowledge, resources and reach to
identify the right solutions, and crucially
deliver on these.
JLT Specialty Limited –
Renewable Energy Practice
Our dedicated Renewable Energy
Practice is uniquely placed to provide
our Clients with a tailored solution.
Drawn from different parts of JLT
Specialty we are individually experts
in our fields, whilst collectively we
have over 150 years of experience in
dealing with complex energy related
projects, both on and offshore. We have
experience in all key renewable sectors
comprising; wave and tidal, onshore
and offshore wind, solar, bioenergy
(biofuels, biomass and waste-to-
energy), hydro, geothermal and
carbon capture.
Our experts, including claims personnel,
work seamlessly together in our City of
London headquarters. This means we
can create the most appropriate team
based on your specific requirements,
at a moment’s notice. Our renewables
experts also have a proven track record
of working in unison with our extensive
JLT International Network, both JLT-
owned offices and third-party Network
Partners. This ensures we can offer our
clients the very best possible service in
all the territories they operate in.
19
20
Notes
RenewableUK
Greencoat House, Francis Street
London SW1P 1DH, United Kingdom
Tel: +44 (0)20 7901 3000
Fax: +44 (0)20 7901 3001
Web: www.RenewableUK.com
Email: [email protected]
Our vision is of renewable energy playing
a leading role in powering the UK.
RenewableUK is the UK’s leading renewable energy trade association,
specialising in onshore wind, offshore wind and wave & tidal energy.
Formed in 1978, we have an established, large corporate membership
ranging from small independent companies, to large international
corporations and manufacturers.
Acting as a central point of information and a united, representative
voice for our membership, we conduct research; find solutions; organise
events, facilitate business development, lobby and promote wind and
marine renewables to government, industry, the media and the public.
