PERse’s success as the largest and perhaps best-known MGU in the business of renewable energy insurance comes down to a recipe of one part continuously earned knowledge, one part relationship-building, and one part serendipity.
This is another way of saying that PERse (Power.Energy.Risk; securing the environment) was developing its expertise and carving a niche in this highly specialized sector long before others became aware of the coverage needs for renewable-energy projects. Fast-forward a decade, and manufacturers of energy-producing technologies will sometimes consult them when making decisions on new products.
“We’ve always believed that renewable energy insurance was relationship-driven – we didn't think it was commoditized,” says Mike Bernay, PERse’s Managing Director and CEO, citing a mantra that he has followed throughout the company’s journey. Bernay has been in the insurance industry for more than three decades and has spent the majority of that time specializing in the power and energy industries.
PERse, which celebrates its 10th anniversary this year, continues to build on its reputation as experts in the field of renewable energy and the ever-evolving suite of products – and equally evolving risks – presented by producers of alternate sources of power. While renewable energy technologies – offering clean sources of energy that are better for the environment – have increasingly become topics of note in recent years as corporations look to “go green” and lower their reliance on traditional sources, that wasn’t always the case.
During the mid-2000s, Bernay explains, renewable energy “wasn't on a lot of people's radar. We were in California, so we were already seeing its development back then. After a while, all of a sudden all these major corporations were getting involved in it, GE was getting involved in it, banks were getting involved in it.” It was then that Bernay and his colleague Patrick Stumbras (PERse’s President & Managing Director), a specialist himself in the insurance needs of alternative-energy manufacturers, began to realize that their expertise could be put to wider use.
“We got into this business because we had clients who couldn't get insurance, and we felt an obligation that we needed to do something about it,” says Bernay. “So we committed ourselves and then we found out that, well, maybe there are some large well-known companies that are also entering into the wind industry, and we went all-in. The next thing we knew, we had major international corporations like GE, Siemens, Shell, and BP getting involved in the renewable industry.”
“For the longest time it was normal to have the brokers and the rest of the insurance community not really be interested in [insuring renewable energy projects], but now that's not the case,” Bernay adds. “Everybody is.”
Valuable experience earned
Although the topic of renewable energy frequently makes headlines today, this is an industry and a market that is still relatively new – especially in comparison to alternative energy markets.
The product offerings, underwriting capabilities, technical services and administration of PERse can be accessed through retail and wholesale brokers in the renewable space, as well as those with traditional energy or property/casualty backgrounds. PERse is a series of RSG Underwriting Managers which is a part of the international specialty insurance organization Ryan Specialty Group, founded by insurance legend Pat Ryan, founder and former chairman and CEO of Aon Corporation.
PERse built a market that, in the beginning, very few in the insurance industry understood or were willing to back with capital because it was such a difficult to capture risk. Today, the renewable energy projects for which PERse provides underwriting capital are primarily wind and solar power-generating facilities, as well as generators of hydroelectric power (50-megawatt, run-of-river hydros are their specialty, says Stumbras) and geothermal units in addition to battery storage.
While there are several key elements that differentiate PERse from others in the renewable energy coverage space, “we like to consider ourselves a true technical underwriter, bringing a lot of engineering focus, a lot of modeling expertise, a lot of actuarial data and those types of strengths to the table,” says Bernay. The renewable energy sector, he explains, for the longest time didn’t separate itself from the traditional power sector, “so it was something that we believed would differentiate us.”
Knowing and keeping pace with the ever-evolving exposures for wind farms and solar farms, for example, involves full-time engineers on its staff as well as third-party engineers who provide a wealth of knowledge to support better underwriting and risk mitigation. The insured values for these types of facilities are high: when it comes to coverage for renewable energy projects, Bernay explains, the lion’s share of the premium is spent on property coverage rather than casualty.
Those engineers are the boots on the ground who understand the materials involved and who help evaluate why a loss occurred. Wind turbines, for example, will sometimes catch on fire; solar panels can crack after being battered by hailstorms. PERse’s experts are able to determine the cause of such losses and provide valuable insight back to their client for the insured on how to better prevent that risk in the future.
Whereas wind projects have existed in the U.S. for more than 20 years, “solar in the last five has really taken off,” Bernay says. He cites several reasons for this, including government incentives, lowered costs around the manufacture of solar panels, and the fact that solar facilities don’t require the much larger footprint required for a wind farm. “You can amass millions and millions of dollars of these without acres upon acres,” Stumbras explains. “Wind takes a significant footprint.”
The frequency and intensity of extreme weather events, however, particularly wildfires and hailstorms, have likewise increased over the past several years, putting solar panels in their crosshairs.
Bernay says, “At one time a lot of people thought, ‘There are no moving parts here, nothing can go wrong,’ and the solar industry itself tried to convince us that there's no way you could have a problem with hail because of the way the farms were constructed. Well, about a good six years into that, hail started creeping up on us in Texas and in the Midwest: solar farms were being built in places where they weren't before. We saw how those facilities were responding to these new exposures, and hail was and is a huge issue we're contending with right now.”
PERse responded by putting specific deductibles on hail damage and taking a much closer look at the panels themselves and how they stand up to micro fractures— and helped redefine what constitutes a true insured loss with this type of photovoltaic (PV) technology.
“I think there was a general misunderstanding by the insurance companies, because what was happening was that we would have these events – a hailstorm, a wildfire – and it would create micro fracturing within the panels. We discovered that most PV panels experience micro fractures during the manufacturing, transit or installation processes, and those don’t degrade or impede their ability to produce power. The output remains the same.
“Early on, nobody really in the insurance industry understood that,” he continues. “We invested a lot of time and money in trying to figure out what constitutes an actual [insured] loss. The solar industry has matured enough that through data and analytics they can tell us whether a micro fracture that’s just been discovered is making any seriously marked change in output. We're very bullish on solar, but we can make that distinction and we write our forms and our policies to consider that – and we have that discussion up front with every one of our clients and our brokers so that they understand.”
In some cases, insured losses aren’t even caused by Mother Nature; in Italy, one solar construction project was plagued by copper theft. Stumbras recalls a similar construction project in South Africa in which a large project site was protected during off hours by a security team of … ostriches.
“True story,” Stumbras laughs. “They said, ‘No one will come on site with them there.’”
In order to try and reduce the chances of wildfire damage, Stumbras says, “we are very deliberate with making sure that the clients have a vegetation management program. Every client now has that on their policy form and we like to regularly review images of the site to confirm that the vegetation is being maintained per the agreed upon guidelines.”
Wild is the Wind
The wind industry, meanwhile, keeps increasing the megawatts and the size of the turbines used, and therefore the cost (and insured value) of the turbines rises in tandem. “Although the cost per megawatt might have gone down, the actual size of the projects themselves has grown, and so you're getting bigger projects with larger parts with more steel,” says Bernay. Previously, those turbines ran about $1 million dollars a megawatt; now, “it's probably closer to almost $2 million a megawatt, in these larger machines.”
Tack on the costs of securing the land and getting all the zoning requirements, he adds, “and if a loss does occur, it's a costly one. It's one of the things that we contend with all the time: the client will tell us that every one of those turbines cost $2 to $3 million to put in, yet if a loss has to be paid on that turbine, it's almost double just because of the additional costs that go in. It's an expensive proposition. These things are not supposed to catch on fire, either, but when they do, you essentially have a total loss.”
Proper vetting of such projects therefore takes on even more importance, given the great potential for loss. Texas is the largest state for wind-power production, with Iowa close behind: “That whole Midwest corridor from Texas all the way up through into Canada is regarded as the ‘Saudi Arabia of Wind,’” says Bernay. Where hurricanes were once never a part of the loss dynamic with wind in Texas, the Lone Star State has not been immune to them in recent years – and with millions in projects at stake, careful risk selection becomes paramount.
Another big exposure for wind turbines, Stumbras notes, is locking pins. One manufacturer, he recalls, “designed a very large turbine and it included an additional pin in its rotor lock design. So when you're putting it together, there's this third pin that never was there before on the smaller MW-rated units – and if it isn’t properly disengaged, you lose good parts of the turbine and it can be disastrous, and it can be a total loss. The placement of the pin is such that it is difficult to verify that it has been properly disengaged.”
“We found that to be an inherent flaw because we have the expertise in-house who can identify what can go wrong on behalf of our brokers and clients,” he adds. “Maintaining strong relationships with vendors who are specialists in these fields is really important to us, so that we can call on them and then give good advice to the client, to our capital, and to the broker – and that makes a big difference, because now we're more than just trying to pay a claim or not pay a claim.”
Keeping the client first
Once upon a time, challenging the manufacturer just wasn’t done, says Bernay. But time taught PERse that after cultivating the right relationships, it could be done – to everyone’s benefit.
“One of the first lessons we learned was – and it was sacred ground – that you never challenge the technology or the manufacturer,” he recalls. “What the manufacturers said, that went. You didn't want to upset them. Our position was, no, you have to challenge the findings if they are not making sense. You have to go back and clarify the results of the claims discovery. Quite frankly, we've won a lot of battles on behalf of our clients and our capital providers. We usually will get the insured to agree with us and our findings and ultimately suggest, ‘Look, this is not an insurable claim. It's got a problem, a “defect,” that created this loss. You guys pay good money for a warranty and need to have the manufacturer involved in the final settlement.’ We help manage that claims process and provide our findings to the insured, manufacturer and all concerned. The majority of the dollar loss goes away and it’s a positive result for the insured and our capital providers.”
PERse’s profile and reputation have grown to the point where turbine manufacturers have sometimes reached out to them when creating new products.
“If manufacturers are doing something different, for example, if a manufacturer was going to put a longer blade on a wind turbine, they'd reach out to us and say, ‘Before we go down the road here with this, is there going to be an insurability problem with this technology?’ Especially when we have a loss, we like marching in lock step with the client, the manufacturer – and ourselves, representing the capital – to make sure we always learn from that loss and hopefully prevent it from happening again. We just don't pay the claim and walk away. We do root cause analyses on every type of loss we have so we learn from it.”
“We want to make that project a safer and better project after a loss. That's part of our goal,” adds Bernay. “Our model has always been to sit next to the broker with the insured and educate them on how all these things work, and I think that's worked very well.”
While PERse’s portfolio carries a great deal of U.S. clients, renewable energy projects are also growing in Latin America, Poland, Romania, Australia and parts of Asia. With its offices in Europe, Canada and the U.S., “We're starting to go where our clients go, which is why we like having the capital that we do,” says Bernay. “We can go from border to border and into different jurisdictions and not worry about getting capacity. Our clients want to make sure they're insured correctly in those jurisdictions, and they rely on us. That's been a really good opportunity.”
Stumbras adds that an additional differentiator for PERse is its culture, its entrepreneurial spirit: “Our actuaries allow us to get on with what we do best. We underwrite and we put our foot to the pedal, and that creates an environment that allows people to thrive. We've been up and running for over 10 years now, and we've had only one employee leave. It's unbelievable that we've been able to sustain that. We all like each other, which is very helpful. We always say, ‘If I didn't work with these people, I'd still hang out with them,’ so that opens the door for very transparent and open dialogue. It really makes a difference.”
