Fires, hail and shifting risks in renewable energy: GCube’s McLachlan interview

The renewable energy insurance landscape is facing increasing pressure as natural catastrophe perils, destructive battery fires, and regulatory challenges combine.

Fraser McLachlan, founder and CEO of GCube Underwriting, sat down with GR to discuss the evolving risks in the sector, the lessons learned from major incidents, and how the insurance industry is adapting.

Wildfire risks and regulatory challenges

With climate change intensifying wildfire seasons, insurers are being forced to reassess their exposure to fire-related losses—especially in California, where regulations limit their ability to exclude wildfire coverage.

“We’re actually obliged to give wildfire cover,” says McLachlan. “Especially in the state of California, it’s very difficult to exclude. You can price appropriately for it, or you can maybe sub-limit it, but you’re not allowed to actually exclude it.”

However, he points out that the increasing costs and regulatory pressure have already driven some insurers out of the market. “California, from an insurance perspective, is in a mess already, with a lot of the big markets withdrawing due to overregulation.”

While GCube has not faced major wildfire losses in utility-scale solar projects, McLachlan acknowledges the growing threat.

“Most of the stuff that we’ve covered so far has been residential solar—rooftop installations—but there are large utility-scale projects in wildfire-prone areas. It’s only a matter of time before a wildfire hits one of those.”

Batteries not excluded – the Moss Landing fire

Risks associated with battery energy storage systems (BESS) have become a major concern for insurers.

McLachlan discusses the Moss Landing fire, a battery storage fire that took place in January at a power plant in California, as an example of the inherent dangers.

“The big problem with putting batteries inside buildings is that once one unit goes, the rest follows,” he explains. “It’s almost impossible to put out because you’re dealing with temperatures over 2,000 degrees Celsius. The fire department will show up and watch, but they’re not going anywhere near lithium-ion batteries.”

GCube has made a clear policy decision, he explains.

“We don’t insure batteries inside buildings for that reason,” says McLachlan.

“Most of the battery projects we write have to be outside, containerized, and well spaced. When a battery goes on fire, you know it’s going to burn. But if it’s just one container, you can manage that risk.”

The insurance industry has had to adapt to these risks, with new policies and pricing structures emerging.

“I think now, after the Moss Landing incident, you’re going to see some facilities either leaving their battery component uninsured or facing much lower sub-limits for thermal runaway and fire,” he adds.

Hailstorms and renewable pricing pressures

Another major issue affecting the renewable insurance market is hail damage to solar panels.

“Three or four years ago, people were giving full limits for hail cover,” McLachlan explains. “Now, every single solar project has a significant sub-limit on hail coverage.”

The problem, he says, is that while solar technology has become cheaper and more widely adopted, it has also become less resilient.

“Over the years, panels have gotten thinner and thinner, the glass has gotten cheaper, and they’ve become more fragile. That’s part of why solar has become more economically viable, but it’s also made them more vulnerable to damage.”

The same pricing pressures apply to the broader renewables market, but reinsurers are showing much more pricing discipline than their primary insurance cedants underwriting this fiercely competitive business.

“The treaty reinsurance market charges multiples of what the conventional property market does for hail, for example,” he says.

“And yet, the renewable energy market is still extremely competitive—some might call it a depressed state—when it comes to pricing risk correctly.”

With increasing losses from events like hail and wildfires, McLachlan predicts that changes will be necessary.

“The market is very oversubscribed right now,” he says. “But as losses start to creep in, we’re going to see a shift. People are going to realise these risks aren’t as benign as they once thought.”