Weather-Related Losses Remain Costliest in Global Power Generation Sector

While weather-related losses remain comparatively rare in the global power generation sector, research published by Marsh highlights that their financial impact is considerably higher than other operational loss events.

The latest Marsh Risk Management Research report, Common Causes of Large Losses in the Global Power Industry, analyzes 150 of the largest insurance claims in excess of US$2 million from 2004-2012 on accounts placed through Bowring Marsh, Marsh’s wholesale international placement division.

According to Marsh, the majority of operational power generation losses are attributed to either one or a combination of issues relating to location, technology, and maintenance. These losses total more than US$1.8 billion, which includes both settled losses and reserves for losses that remain ongoing.

While machinery breakdown accounted for three quarters (76 percent) of the losses analyzed, 57 percent of the total US dollar cost was attributable to this type of event. Weather-related events, which accounted for only 12 percent of the losses sustained, accounted for 22% of the total claims cost in US dollars.

Philippe Du Four, Chairman of Marsh’s Global Power Practice, commented: “All types of commercial and industrial locations are vulnerable to weather-related events, rather than it being a risk predominantly affecting the global power generation sector. Reducing the impact of weather-related events continues to be a challenge for the global power industry and robust risk management remains key.

“Stressing the value of monitoring and controlling both the technology employed, notably for reliability as well as efficiency, and ensuring a proper program of maintenance are clearly critical components of loss prevention. In turn, loss prevention is essential for protecting reputations, optimizing operating efficiency and securing reduced premium rates from insurers.”

Source: Marsh