Until recently, solar power projects were seen as low risk for insurers. As a result of significant natural catastrophe losses in recent years, this is beginning to change. Weather events such as heavy rainfall and subsequent flooding have driven insurers to evaluate their view of natural risks.
In particular, flooding is an area where underwriting information is critical to securing cost effective cover, even in lower risk territories. If your site is in a flood risk zone, risk mitigation will be required.
Understanding the exposure to risks
Flood risk assessments (FRAs) are crucial for solar farm projects as they provide a detailed understanding of the potential flood hazards that a site may face. By evaluating the site’s historical flood data, FRAs help identify areas at risk of flooding. This information is essential for accurately assessing the insurable flood risks associated with solar installations. For example, if a solar farm is located in a low-lying area adjacent to a reservoir, the FRA can highlight specific vulnerabilities that need to be addressed in insurance coverage.
Accurate premium pricing and deductible levels
A comprehensive assessment allows insurers to determine appropriate premium levels that reflect the true exposure of the site, as well as setting the right deductible level. Without accurate FRAs, insurers may underestimate risks, leading to inadequate coverage and financial losses during catastrophic events.
Tailored insurance coverage
FRA findings enable insurers to tailor insurance policies specifically to the unique characteristics of each solar farm. By understanding site-specific risks such as potential flooding depths and velocities, insurance products can be customised to include necessary endorsements or exclusions that align with actual risk levels. This tailored approach ensures that solar farm operators have adequate protection against potential losses while also optimizing their insurance costs.
Mitigation strategies and resilience planning
FRAs inform design considerations that enhance resilience against flooding events. By identifying vulnerabilities early in the project development phase, engineers can implement mitigation strategies such as elevating critical infrastructure above expected flood levels or designing effective drainage systems. These proactive measures reduce potential damage during floods and contribute positively to an insurer’s assessment of risk.
Long-term financial viability
Investors and stakeholders increasingly prioritise sustainability and resilience in renewable energy projects like solar farms. Comprehensive FRAs contribute to long-term financial viability by minimising downtime due to flooding-related damages and ensuring operational continuity during adverse weather events. This stability is attractive not only for insurance purposes but also for securing financing from investors who seek assurance against climate-related risks.
In summary, flood risk assessments are vital for determining insurable risks, setting accurate premiums, tailoring coverage options, enhancing resilience through mitigation strategies, and supporting long-term financial viability for solar farms.
Parametric Solutions insurance
Alternatively, should the flood risk prove too high for traditional insurers to offer competitive terms, parametric insurance coverage would be an alternative option. Parametric insurance is a type of insurance that agrees to make a payment upon the occurrence of a specific event, rather than indemnifying the actual loss. This event is typically linked to a parameter, which is why it's called 'parametric'. These parameters could be anything from the magnitude of an earthquake, the speed of wind during a storm, or a certain level of rainfall. If these parameters are met or exceeded, the insurance policy pays out a set amount to the policyholder.
The main advantage of parametric insurance is its simplicity and speed. Because the payout is determined by predefined parameters, there's no need for the lengthy claims handling and loss adjustment process that can delay payment under traditional insurance. This makes it particularly useful in disaster-prone areas where quick access to funds is essential.