03 August 2022
Contingent Risk Insurance for Renewable Energy Investments
Contingent risk insurance can help clients where:
- The parties have identified a technical/legal issue or defect;
- It can be explained/demonstrated why in practice the probability of the risk manifesting is reasonably low;
- The issue is holding up an acquisition/divestment, financing or distribution, and the parties (or their lenders) would prefer not to: a) self-insure, or b) reserve funds to address the risk should it arise; and
- Absent insurance, the risk might appear as a contingent liability on the insured’s balance sheet.
Scroll for some examples of insurable Contingent Risks in the context of renewable energy projects
The field is relatively jurisdiction and sector agnostic. Characteristics of a good insurable contingent risk include:
- It needs to be possible to underwrite the risk – that may be down to any combination of data, legal interpretation, multiple uncorrelated triggers.
- Insurers will not take a pure gamble – there needs to be a coherent, logical basis as to why the risk should not arise.
- Most contingent risk underwriters are ex-lawyers, and most comfortable with risks involving a discrete issue of legal/contractual interpretation. This is not essential for all insurers however.
- There needs to good access to information and openness from the client.
- The insurance serves a strategic purpose, rather than simply to eliminate downside risk.
- Contingent risk insurance is often used to address risks that do not fall neatly into another category of insurance, though most underwriters will avoid scenarios where the insurance is purely to plug a gap in cover in an operational insurance policy.
- Minimum premium: c. GBP/USD/EUR 200,000. Most are GBP/USD/EUR 500,000 – 10,000,000. The premium is usually a one-off payment of 2.5% – 12% of the limit.
Fact patterns that satisfy (at least most) of this criteria may be insurable.
The Walbrook Building 25 Walbrook London, EC4N 8AW
Let's talk
Arthur J. Gallagher (UK) Limited is authorised and regulated by the Financial Conduct Authority. Registered Office: The Walbrook Building, 25 Walbrook, London EC4N 8AW. Registered in England and Wales. Company Number: 119013.