Report: Renewable Projects at Risk from Contractor Errors and Defects, Natural Cats and Extreme Weather

Renewable project buildouts continue to be jeopardized by contractor errors and defects, natural catastrophes and extreme weather events—on-shore and offshore challenges that could delay start times and drive up construction claims.

That’s the assertion in a new report, which calls out construction claims as among the most complex for insurers and asset owners to settle.

The report from GCube Renewable Energy Insurance, “Arrested Development: complex claims in the boom-and-bust world of renewables construction,” shows construction claims have surged over the past decade, driven by a correlation between the rapid growth of renewable energy projects and construction-related losses.

The report details findings from $1 billion in Construction All Risks (CAR) and Delay in Start-Up (DSU) claims split by $275 million for onshore and $725 million for offshore sectors.

The report attributes the biggest offshore claim losses offshore to contractor errors and defective manufacture, which consist of nine of the top 10 claims.

Contractor error represents roughly one third of total claims by frequency (32%) and total cost (36%). Defects represent 15% of claims by frequency, but a higher severity of claims (27%), the report shows.

“Construction activity in the offshore wind market over the past decade has been characterized by ‘boom and bust’ cycles,” the report states. “These cycles have coincided with fluctuating levels of subsidy support, as well as European and global auction schemes, which have driven waves of construction activity.”

Weather and natural catastrophe events account for 48% of losses in onshore renewables construction . Contractor error and defect was the next most common loss in this category at 16%. Mechanical breakdown was the most frequent cause of loss during construction (23%), but these breakdowns produced a lower severity of claims (10%).

Flooding and heavy rainfall are the costliest, representing 18% of total claims by frequency but 46% of the total claims cost.

Key findings in the report include:

• Contractor error and defect were the major root causes of offshore wind losses – representing 63% of claims by frequency in 2022, up from 55% in 2020
• Historically, increased offshore construction activity has been matched by a surge in insurance claims, forming a cyclical ‘boom and bust’ pattern.
• Of weather-related losses, flooding and heavy rainfall prove to be the costliest weather events, representing 18% of total claims by frequency but 46% of the total claims cost.

GCube Insurance analyzed trends and data in the construction industry globally from 2013 to 2022 to compile its report.