As the pipeline of renewable energy project development grows in Latin America and the Caribbean, Arjun Sharma, Partner, looks at how wholesale brokers can guide retailers and insureds to secure competitive premiums while managing the challenges of natural catastrophe risks.
1. Arjun, remind us of some of the key risks developers face in project development in Latin America and the Caribbean.
We’re seeing a significant pipeline of projects in Latin American and Caribbean countries, which are emerging as new growth opportunities for renewables and infrastructure. But natural catastrophe (Nat Cat) risks in the region mean that insurance solutions must be more creatively structured. Developers and asset owners may find they hit limitations in existing Nat Cat cover, and therefore need additional capacity to secure the risk transfer demanded by project lending or equity.
Crucially, that additional capacity is available in Miami, London and European markets and we can work with insureds and their retailers to secure excess layers of coverage – particularly when it is a lender-required top-up needed urgently before financial close.
For example, we recently had a construction project submitted where the flood risk had been remodelled with latest catastrophe software updates, and now needed a substantial increase in limit prior to binding the following day. Going back to an all-risk panel would mean dropping to smaller line sizes and finding new insurers, so being able to secure excess capacity rapidly ensured project timings stayed on track.
2. How can developers mitigate risks most effectively in planning and construction
With locally intense rainfall, ground conditions can become liable to saturation and flooding, so it’s important that developers carry out detailed flood risk assessment to assess the risk of landslide, flooding and subsidence prior to construction. As we’ve discussed, gradient maps, hydrology reports, geotechnical reports and borehole data are critical tools to understanding the nature of these risks in the first place. Typically, the more comprehensive hydrology and geotechnical reports, the greater the chance of dispelling Nat Cat concerns for projects we’re looking to place.
Additionally, at NARDAC, we also include a risk engineering fee that enables us to send qualified engineers to project sites to survey construction and operations. This means we not only have the latest project information, but it also means we can be more selective with sublimits, as we can assess the site conditions ourselves in person.
For example, I’ve recently returned from a trip to the US Virgin Islands to look at a solar and BESS project. By being on the ground, and observing the local site conditions, I was able to determine that wildfire risk was lower than that suggested by a desktop survey, and we could therefore secure improved underwriting terms for the client.
3. Outside natural perils, are there other risk considerations that retailers and insureds should be thinking about?
Again, ground works are critical. We’ve seen examples of failures in anchoring and foundation works that have resulted in solar farm damages in Central America following tropical storms.
Secondly, contractor and construction risks remain a concern for underwriters, so ensuring appointed engineering, procurement and construction (EPC) firms have completed natural hazard mitigation measures (flood risks during construction) and are on schedule with key works – such as grid connections – is key. If these stages are rushed, there is an increased chance of issues with future power export, project downtime for remediation works and business interruption.
And, as before, a site visit to meet with contractors ensures we secure the information first hand. We know a number of EPC firms in both Latin America and the Caribbean, and have identified those that, in some cases, have over 50 years of civils experience specific to the conditions of their homeland geography, and a large portfolio of successes. A recent Ecuadorian hydro project we supported secured the confidence of London underwriters owing to the highly localised experience of the contracting parties.
Elsewhere, feedback from various London insurer leads from their experience in both CAR and OAR risks highlights a varying efficacy with which developers make improvements, manage quality control or deploy O&M strategies, which has directly led to losses in their books. Therefore, presenting clear Quality Assurance and Quality Control plans that set out the frequency and scope of inspections, named third-party verification bodies, and rectification procedures for identified issues – along with a detailed O&M strategy highlighting condition monitoring and preventative maintenance approaches – will help enhance the perception of project management with underwriters.
More widely, for wind and solar projects – and this applies globally – the theft of components such as copper wiring, solar modules, and turbine parts is a notable risk. Projects that demonstrate strong site security, such as controlled site access, monitored perimeters, and security patrols again mean we can provide underwriters with greater confidence in asset protection, resulting in improved terms.
4. What are some of the examples the market can draw from where lessons have been learnt?
The landslide during construction at the Ituango hydropower project in Colombia in 2018 – which led to a substantial claim across the global insurance market – shaped underwriting appetite for LATAM hydro for some years afterwards.
However, from what we see of new regional hydropower risks, lessons have been learned – and while Ituango exposed deficiencies in geological assessment and project execution, those failure conditions are not necessarily endemic to all hydropower development today.
And with regard to mitigation for severe convective storms, the installation of solar arrays that have tracking (moving) rack systems that can be stowed at an angle to minimise lift from wind, or reduce exposure to hail damage, are also helping to demonstrate pro-active approaches to reducing operational risks.
5. How, ultimately, can retailers secure the best premiums for their insureds in Latin America and the Caribbean?
Present the most up to date information. It sounds obvious, but we see a large variation in submissions – either poor or good. While it’s not unusual for projects to evolve between financial
close and construction—often due to practical adjustments—the difference in underwriting response can be substantial. Submissions that are comprehensive and fully up to date tend to secure rates three to four times more favourable than those lacking detail or current information. Where submissions are accurate, we can also secure the best response times from underwriters keeping projects on track.
Also, working with insureds to understand where there is flexibility in their needs can help bring on more competitive underwriting. For example, projects in remote areas may face logistical delays affecting start-up. Underwriters may require deductible waiting periods before delay in start-up cover becomes active. For Caribbean and Latin American projects, we help clients develop risk management plans that shorten lead times for critical equipment, reducing exposure to downtime.
Fundamentally, we know that successful placements depend heavily on understanding what underwriters expect at each phase of a project. During construction, underwriters seek clear demonstration of quality control procedures, robust contractor management plans, and detailed geotechnical assessments to mitigate risks such as landslide, subsidence, and structural failure. In operational phases, the focus shifts to rigorous maintenance schedules, thorough asset monitoring protocols, and evidence of proactive loss prevention measures.