In the US, the latest Global Corporate Climate Change Report lists the saints and sinners of the insurance industry and criticises US-based companies for downplaying the effect of climate change. The UK insurance sector appears to be getting its house in order - the Association of British Insurers, Lloyd's and forty or so insurance sector companies have come together under the Climatewise' banner, pledging adherence to six worthy principles aimed at reducing long-term risk from climate change.

A new report from Lehman brothers in the US has found there is little appetite for providing insurance against climate change itself. As one might expect, they cite an inability to predict trends and impact. They also cite the universal impact that climate change will have, making it difficult to transfer risk. However, climate change is driving growth in other areas and insurers are proving keen to capitalise on that growth.

Renewable energy take-up in the UK and around the world is fuelling a demand for risk management advice and risk transfer. Whilst the UK still lags behind Germany, Spain, Denmark and Italy in renewable energy use, the sector is growing at 18 per cent per year across Europe with energy production costs now on a par with nuclear and coal.

In the 2007 Pricewaterhouse Coopers (PwC) annual survey of utility companies, executives listed renewable energy development as the most important major development in their power markets in the next five years. The survey also listed wind energy as showing the greatest increase in proportion of supply. The Government has also finally backed growth in renewable energy. The UK Government's 2007 Energy White Paper has set a target of 10 per cent of energy coming from renewable sources by 2010, and the Climate Change Bill is looking for massive reductions in carbon emissions by 2020.

The insurance market is gearing up to service this actual and expected growth. Big players are regularly announcing renewable energy business units, and expertise in the sector is at a premium. It's big business - Lloyd's insures around 25 per cent of the world's wind farms through its WindPro consortium of syndicates. The facility typically provides £25m of cover for a 30-40 megawatt project, but is capable of providing a one-stop shop for up to £260m of cover for larger projects in the US or Germany. A report by brokers, Marsh, last year identified onshore wind, energy from waste, offshore wind and small-scale hydro as being perceived as offering the greatest business opportunities for insurers.

Insurers offer a range of traditional cover to renewable energy projects: transit of equipment, construction and erection risks, operational risks, employer's and public liability, business interruption and environmental liability cover. However, the ever innovative insurance market will also provide cover against loss of profits due to lack of wind at a wind farm, or costs and expenses incurred due to offshore wind farms being inaccessible due to wave height, or even protection against a failure to qualify for tax credits.

The renewable energy sector brings its own combination of risks to the insurance market. Many of these risks are well known and understood by insurers, but the sector has it's own unique issues too. The onshore sector is well developed, but the offshore sector is very much still developing. The market is using its experience of onshore wind farms and combining that with offshore oil and gas expertise to tackle the property and marine risks involved in offshore wind farms.

The single biggest issue for insurers is new technology - if the technology is prototypical or new to this sector, predicting its performance is difficult. What the market needs is reliable data on performance so that it can better evaluate performance risk, but this will only come with time. Notably for insurers, the PWC utility company survey listed developments in wind energy technology as the main area for technical development in the energy sector in the next five years.

With the insurance market for wind energy expected to be worth over £1 billion by 2015, and brokers dismissing recent fears that the insurance market is struggling to find capacity to write offshore business, it looks as if renewable energy growth is one effect of climate change that insurers are set to profit from.

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