Insurance: what do green energy asset managers need to know in a hard market?

It is widely reported that the market for construction insurance is currently "hard": insurers are less willing to write business that is perceived to be risky, premiums increase, policy limits decrease, deductibles rise, and a tougher approach is taken to claims handling. 

While there is little that green energy asset managers can do about the market, there are things that can be done to improve the prospects that renewals and claims will be handled as positively as possible by underwriters. 

Prepare early for renewal 

The duty of fair presentation requires a prospective assured to disclose the information that a prudent insurer would want to know when: deciding whether to issue the policy and, if so, on what terms; and determining the premium. 

While the rules on disclosure are less prescriptive than they were historically (for example, placing insurers under and obligation to make their own enquiries when put on reasonable notice), the consequences of failing to provide proper disclosure can be severe, from reducing the amount of cover available to rendering the entire policy void. 

Asset managers can help themselves by making sure that brokers are well acquainted with the nature of the business and by preparing the documents necessary for renewal well in advance. The broker can assist in ensuring that they present a narrative of a business that fairly reflects not only the facts of the loss record but also sets out the risk management procedures and processes which can reduce the risk profile of the business.

Notify claims and circumstances in accordance with the policy 

Care should always be taken to comply with policy requirements regarding the notification of claims or circumstances which may result in claims. Late notification of claims has the potential not only to undermine the existing claim but also raise questions about whether there was a fair presentation of the risk on renewal. Notification provisions may be onerous and require very swift notification to underwriters. 

When negotiating any new policy, it is important to consider whether any matters should be notified to the expiring policy to preserve potential claims as well as discharging the duty of disclosure in respect of the new policy. 

Check heads of cover 

On renewal , it is useful to consider whether the heads of cover are appropriate. 

Energy companies will typically maintain coverage for physical assets and coverage for public liability and employers' liability. However, it is also important to consider whether coverage for risks such as business interruption, increased costs of working, cyber, and directors and officers are appropriate. 

Where asset managers are involved in new projects, there are a variety of specific covers for delay in start-up and advance loss of profits which may supplement contractors' all risks (CAR) coverage. The interaction between these specialist covers has to be considered carefully. It is usually best to avoid double insurance where the amount recoverable on any one policy is limited, as this may have an effect both on the retentions or deductibles to the claim and can complicate claims handling unnecessarily. 

Check third-party requirements 

Asset managers also need to be aware of the requirements of third parties when considering the scope of insurance coverage, which may include lenders (particularly in the context of a project financed project) or contractual counterparties. 

In the case of a financed project, lenders will typically expect to see CAR, business interruption and third-party liability coverage with strict beneficiary of and coverage requirements – failure to meet these requirements will likely result in a default under the agreement, unless coverage is not available in the market and the loan-facility agreement makes provision for unavailability. 

Osborne Clarke comment 

It is important to check claims cooperation and handling clauses. Insurers often look to include provisions allowing them to appoint their own panel lawyers to defend an incoming claim. While this can be acceptable in straightforward matters where there is an advantage in minimising legal expenditure, there may also be an advantage in asset managers having their own lawyers being able to handle the situation – particularly if the matter is complex and would benefit from an existing knowledge of the business or if coverage issues could potentially arise. 

Any discussion about whether insurers will agree to the costs of using a trusted firm are best had on renewal rather than in the event of a claim.