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Discussing Insurance and Fire Risks of Wind Turbines

Watch snippets of our conversation with Jatin Sharma, Managing Partner, NARDAC and Former President of GCube Insurance Services, Inc. to learn about trends of wind turbine fires, how both insurers and insureds benefit from fire protection, some common misconceptions about wind turbine insurance, and more.

The Purpose of Insurance


"The purpose of insurance is really to cover sudden and unforeseen losses. So, the insurance industry should step in and take care of a fire because that's what people are buying an insurance policy for. That said, as we see a greater frequency of fire events in the industry many underwriters will become increasingly wary about particular original equipment manufacturers or particular locations of projects or particular types of projects, where they may look to potentially restrict cover, impose high deductibles or ultimately charge the project developer higher premiums. It's one of those areas where, you know, yes, insurers have typically stepped in in the past, they have taken care of it but will this still be available in three to five years in a sustainable way at reasonable pricing?

I think with fire, the renewable energy industry has been fairly lucky when it comes to the amount of claims activity that has been seen. It's tended to be restricted to single turbines. It's tended to be a rare occurrence. But as there's more frequency of turbine fires, we will start seeing that conditions tighten and ultimately, it's going to have a difficult impact for developers.

The final thing I'll say about a turbine fire claim is that it's not just a case of telling your insurer, 'Oh, I've had a turbine fire, please indemnify me for X amount of money.' The underwriters and the claims managers for that claim will want to do a root cause analysis, they'll want to speak to the original equipment manufacturer. You could potentially incur additional costs as you shut down your entire wind farm to do investigations that aren't covered by insurance because those other turbines haven't been damaged by the fire.

So, you know, it's not just about the economic losses that you have recovered from your insurance policy, it's about the other impact on annual energy production and your other assets and also reputation, which is not something that the insurance industry is protecting, that's on you."

How Wind Turbine Fires Affect Insurance Premiums 


"Underwriters will typically evaluate a risk for its merits and derive pricing based on a number of different underwriting factors. Location of risk, technology, deductibles, client's experience and claims history. Now, any client that's had a claim will typically incur a potentially high premium, or higher deductibles based on its loss history. Now, some of those losses can be within its control. So for example, operations and maintenance procedures that could lead to mechanical an electrical breakdown or from environmental factors such as lightning or natural perils leading to losses. Turbine fires tend to be more rare occurrences and often it's a case of, did it originate within the turbine or did it originate externally? And if it was within the turbine, is it a case of electrical, mechanical malfunction or something else that was within the insured's control?

So when it comes to pricing, I think it's fair to say that premiums typically increase with high deductibles for clients after they've had a turbine fire and many can often get sticker shock when they see how much the risk exposure and pricing has potentially changed after just a single fire event.

Sometimes it's not even their own project that may sustain a fire. It could be the same original equipment manufacturer and that particular model of turbine could have a high number of fires in industry, and then developers around the world start seeing restrictions on that particular project because of fires associated with other projects on that particular make and model.

To answer your question succinctly, premiums go up, deductibles potentially increase, and we can see a restriction in cover for that particular type of technology."

The Effects of Fire Suppression Systems on Insurance Premiums


"Underwriters are still grappling with differentiating pricing terms and conditions for particular technology such as fire suppression systems. For the most part, because fires have been rare in the past, they've been reticent about giving particular discounts or provisions for particular technology. But as we start to see more turbine fires in the industry and those projects that have them and those that don't, I think that fire suppression systems and particular brands and companies will be closely watched for their ability to suppress those fires and their ability to differentiate risks for their own merits.

Fire suppression systems are critical to the insurance industry's profitability in underwriting renewable energy risks, whether it's for wind or it's for solar. I think there's a number of developers out there that have taken the early lead to incorporate them into their assets. Either it's been as a result of municipalities or local communities pushing for it, or it's just been because they intend to be long-term owners.

Fire suppression is obviously critical to ensuring long-term asset integrity but it's all about the long-term horizon. Many developers that don't take that long-term view may not invest in it, but I think from an underwriting capital point of view it's only a matter of time before it becomes a minimum requirement in order to insure these assets. "

Differences in Insuring Offshore Wind Turbines


"We've yet to see an offshore wind turbine fire, and I think it's only a matter of time. Fortunately, the operations and maintenance procedures for offshore wind are very, very robust indeed, but bear in mind that the cost of replacing an offshore wind turbine can be five to 10 times higher than onshore. So it is only a matter of time and it could potentially have a devastating impact on the industry. Part of that is driven by the fact that the offshore wind space is really dominated by one major OEM, with the growth of others there as well.

We have seen a fire in transformer for an offshore wind farm following a lightning event in the South China sea. We have seen some other sort of transformer fires arise off the coast of Germany, but we've yet to see one really in the offshore wind space for an OEM for a WTG."

The Benefits of Proactively Mitigating Fire Risk


"If people are willing to make the investment and be more proactive about dealing with fires in terms of risk mitigation, we'd obviously see fewer fires, fewer reputational damage incidences for the industry, less likelihood of wildfire impacting communities and fewer economic losses because we wouldn't have to see the shutdown of entire wind farms following a single fire event."

Are Wind Turbine Fire Incidents Increasing?


"We are seeing an increase in turbine fires in the wind energy industry. It's broadly in line with the proportions that we saw a few years ago in terms of one in every 2,000 turbines, but now the economic effects tend to be larger because the annual energy production is from larger single turbines which have higher revenues associated with them.

We're also seeing that for the most part, following a loss there is a greater amount of shutdown of an entire site. So that leads to annual energy production being curtailed for potentially a very large utility scale project. Now, wind energy production is not linear. As you know, the windiest months of the year are typically in April or May in the United States. So you can have a disproportionate impact on revenue, if you have a fire loss between April and June, and that correlates with higher available yields and energy production in the wind energy space."

Other Safety Measures Being Added to Wind Turbines


"We're seeing a number of clients take a very proactive measure, whether they're told to do so by municipalities, local governments or they're choosing to do it based on their own performance that they've seen on other projects, retroactively going back and installing fire suppression systems. I think they're seeing that within that peer group the damaging effects that a fire can have not only on economic losses, but on reputation. So it's critical to take this approach. Now, obviously it's less expensive if they do it upfront than doing it retroactively, but more companies are looking at that as a business risk that they want to have protection against, especially for those that are long-term owners."

Role of Insurance in Influencing Risk Mitigation Technology


"Insurance companies tend to be quite far removed from a project and tend to get involved in the 11th hour. But typically, they're able to aggregate a lot of data and they can see it based on original equipment manufacturer or particular locations. Now, the insurance company will typically start making exclusions for particular types of losses when they can see that a trend is no longer sudden and unforeseen. We saw it in the gas turbine market with a particularly high profile original equipment manufacturer and we've seen it in the wind turbine market for things like lightning protection systems on blades, or particular overspeed events with particular OEMs. And with wind turbine fires, it's no exception.

A good example of things that insurers are doing at the moment is insisting on risk engineering, loss control inspections and fire surveys on particular sites. This is from anything to do with doing borescope inspections and making sure that the original equipment manufacturer and OEM policies are being followed, to looking at vegetation management for a site and the risk of wildfire or the risk of debris going from a particular wind turbine fire and causing further ensuing damage. Now as much of this that can be done pre-loss, it saves a lot of money and it saves potential reputational harm for clients. But a lot of these things unfortunately tend to happen after a loss and a painful lesson learned."

Common Misconceptions You May Have About Insurance


"I think there are a number of common misconceptions that insureds have about their insurance policy. One that I've typically seen is that, 'insurance will cover me for everything.' And actually, insurance is there for the losses that are sudden and unforeseen and there is a policy outlining what is covered and what is not covered. Doing your due diligence to minimize the loss typically is not covered in your insurance policy. So it's really about the permanent works of the sites, the physical loss or damage and the the revenue that is potentially lost on that particular asset. The economic losses that arise from the rest of your plants that had not been damaged is not typically covered. Typically, the insured will state a certain amount is the replacement cost value of a turbine.

Now, when you build a project, you typically will buy turbines at a discount because you're buying a hundred of them. But when you have a turbine fire, you're replacing one turbine. That cost to replace one, you don't get the same bulk discount as when you're buying 100. So many are often surprised that they perhaps haven't itemized their replacement costs in the correct way because the individual turbine claim could cost 30 to 50% higher than the bulk order cost of a single turbine when they procured and built the project to begin with."

How Do You Calculate Fire Risk?


"Calculating for fire risk in a wind turbine project is very tough. Some insurers will have particular experience either in a location, country, particular original equipment manufacturer where they will see fire risk is greater. Now this might be because it's a wildfire concern and it's about external perils, or it could be because a particular original equipment manufacturer has had a higher propensity for turbine fires. It's really based on each individual insurers' own experience. And ultimately I think they derive pricing based on a number of factors. Fire is one of them, but they'll also look at age, location, quality of operations and maintenance, the deductibles. They'll look at a range of factors which will focus on the normal loss expectancy of a site, the probable maximum loss and the maximum foreseeable loss. And ultimately that's what drives pricing."

Changes We Can Expect to See in 2021 and Beyond


"We've obviously seen an uptick in the global number of turbine fires in the last few years. So in terms of planning for 2021, we're definitely taking a more proactive approach to risk engineering, loss control surveys, making sure that we're communicating with our clients about the perils that are typically leading to more high frequency, high severity losses. It's really about information sharing. And ultimately once you share that information, how can an insured, how can an operator be better prepared, have a business continuity plan and articulate that to differentiate their asset to underwriting capital? Because they're the ones being proactive. They're taking the lessons learned globally. We're working with them on loss control inspections, risk engineering and ultimately finding a way to differentiate them to underwriting capital that shows that they're aware of the business risks of operating in renewable energy and they're proactively doing something to mitigate them. 

Really love the work that Firetrace are doing and we hope we can support you in the future."

Watch the Full Video (15 Minutes)



As we look into the future of the renewable market, energy generated from wind turbines is more relied-upon by communities. As fleets age and capacity is significantly increasing on new models, a fire in a wind turbine can be devastating. The loss of revenue, investigation and replacement costs, and increased premiums can be substantial. Installing automatic fire detection and suppression systems is one way to mitigate fire loss.

Should You Opt-in to Fire Suppression on Your Wind Turbines?