"Growing Renewable Energy Insurance Market Requires Sustainable Efforts"

Source: Korea Insurance Research Institute

[Asia Economy Reporter Changhwan Lee] As the renewable energy industry develops domestically, there have been calls to expand the related insurance market.

According to the Insurance Research Institute's report titled "Current Status and Implications of the Renewable Energy Insurance Market" on the 20th, renewable energy has been continuously growing as an energy supply means that replaces fossil fuels in terms of global climate change response and energy supply diversification.

According to the International Renewable Energy Agency (IRENA), the global renewable energy generation, which was 5516 TWh in 2015, has increased annually to reach 6963 TWh in 2019.

Domestically, as the government promotes policies to achieve carbon neutrality by 2050, the transition to renewable energy such as solar, wind, and hydrogen power is accelerating.

Accordingly, insurance companies have developed insurance products that cover various risks arising in the increasingly diversified business processes, including solar power generation, geothermal and wind power, and biomass.

Domestic insurance companies sell Comprehensive Machinery Insurance (CMI) that compensates for losses caused by accidental incidents to machinery, buildings, and production facilities installed and operated at renewable energy sites. CMI insurance is an All Risks Policy product targeting facilities such as thermal, hydro, wind, and solar power plants.

In 2019, five domestic insurance companies including the Engineering Mutual Aid Association, Meritz Fire & Marine Insurance, Samsung Fire & Marine Insurance, Hyundai Marine & Fire Insurance, DB Insurance, and KB Insurance jointly launched a mutual aid product for small and medium-sized renewable energy operators to share losses occurring during renewable energy operations.

However, recently, both domestic and international insurance markets have seen a decrease in insurers' risk underwriting for renewable energy businesses and an increase in premiums due to the low profitability of this insurance.

The increase in natural disasters such as heavy rain, tsunamis, floods, and wildfires, aging of renewable energy generation facilities, and increased risks related to parts supply for maintenance and operation have led to a decline in underwriting for renewable energy insurance, according to analysis.

In Korea as well, the loss ratio of CMI insurance related to renewable energy is at a very high level, so domestic insurance companies mainly accept subscriptions only from renewable energy operators with large insured properties.

In particular, regarding the mutual aid product introduced for small-scale operators, the report pointed out that since the current premium burden is high and operators voluntarily subscribe, adverse selection is likely to occur, with operators located in relatively high-risk areas with a higher probability of damage subscribing to insurance.

The report emphasized that insurance companies need to establish preventive measures for risks associated with renewable energy businesses and implement more proactive and preemptive risk management to make the renewable energy insurance market sustainable. It also argued that the government needs to provide more active support.

Researcher Sangyong Han of the Insurance Research Institute stated, "Domestic insurance companies should recognize that supplying renewable energy insurance can lead to profitability and enhancement of corporate value, and improve their expertise to identify and quantify the complex and diverse risks related to renewable energy businesses."

He added, "The government should consider measures to subsidize part of the insurance premiums borne by subscribers of renewable energy insurance to promote efficient risk management and the spread of renewable energy through the activation of renewable energy insurance in Korea."

This content was produced with the assistance of AI translation services.