Industrial Insurance in 2023
The year 2023 will bring significant changes in the field of industrial insurance. A fundamental problem now and in the future will be a reduced supply of insurer capacity for covering larger risks. This applies particularly, but not exclusively, to the energy sector.
Industrial Insurance
For companies such as power plants or heating plants, 2023 is a crucial year. There are several reasons for this. Due to high inflation and the general increase in prices of input materials, commodities, and last but not least, labor, heating plants are forced to purchase significantly more expensive inputs for heat or electricity production. The price of their final product naturally also becomes more expensive. All these economic parameters have a significant impact on the insurance sector. The new determination of insured sums and business interruption values can significantly affect the insurance costs for a given company when renewing a contract.
On the other hand, we are facing a broad reduction in the offerings of insurers and reinsurers in the energy sector. In previous years, supply restrictions were limited only to coal-related industries. However, the scope is now widening, and the reduction affects a wide range of industrial sectors. Insurers are starting to consider the European Green Deal agreement from 2019, which aims to reduce greenhouse gas emissions, and are thus withdrawing from insuring companies that work with fossil fuels. The European Disclosure Regulation from March 2021 also works against insurers. This regulation obliges the financial market to disclose how they consider sustainability in their investments. Insurers are thus forced to disclose how their investments account for sustainability and what impact they have on the environment.
For companies in the energy sector, this creates a problem with risk coverage and finding reinsurance capacity. Individual insurers do not have sufficient capacity to insure large entities, and therefore must spread the coverage across multiple insurers or reinsurers to achieve the total scope of coverage for a given company. The price paid by the insured entity is thus composed of partial prices, meaning a generally more expensive premium.
More than ever before, long-term partnerships and cooperation between the insurer, broker, and the client themselves will play a key role in the insurance sector. An individualized approach will be more crucial than at any time before the war and climate crises.
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