Marsh warns region’s power generation companies not to underestimate costs of nat cat claims

Philippe Du Four

The financial impact of weather-related losses on the power generation sector is considerably higher than other operational loss events, according to recently released Marsh research.

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

It found that while machinery breakdown accounted for 76% of the losses analysed, only 57% of the total cost was attributable to this type of event. Conversely, weather-related events, which accounted for only 12% of the losses sustained, accounted for 22% of the total claims cost.

Claims warning

The global chairman of Marsh’s power practice, Philippe Du Four (pictured), said power generation companies in Asia should be careful not to underestimate the costs for weather-related claims.

“This region is particularly prone to weather-related natural disasters, and a single event can cause significant impacts to a company’s cashflow,” he said.

“Reducing the impact of weather-related events continues to be a challenge for the global power industry. Robust risk management remains key.”

Singapore-based Du Four added that financial impacts could be amplified in markets in which rates were set by the government and operating margins had little room to move.

Impact controls

The report concludes that all types of commercial and industrial locations were vulnerable to weather-related events, but the impacts of these events were subject to only limited forms of control. Such controls include situating control rooms on upper floors to avoid flooding, and sourcing alternative supply chains for essential products.

Du Four said that monitoring technology and implementing a comprehensive maintenance programme were critical to effective loss prevention.

“In turn, loss prevention is essential for protecting reputations, optimising operating efficiency and securing reduced premium rates from insurers,” he said.

Nuclear issues

The report also touches on the issue of nuclear power, stating that popular fear of nuclear power generation – together with concerns over hazardous waste storage and the high costs of decommissioning – had led to a polarisation of viewpoints and varied and confusing stances among different countries.

The report states that China has about 30 reactors under construction, with many more planned, while India has seven under construction. Plans are in place in Vietnam to develop two nuclear plants, while South Korea expects to have eight advanced PWR1400 reactors commercially operational by 2021.

On the other hand, Thailand and Japan have both expressed a desire to reduce their dependence on nuclear power, the latter mainly the result of the ongoing impacts of the Fukushima nuclear plant disaster.