IMIA NEWS. News from the International Association of Engineering Insurers. 27 th Issue - July In this edition

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1 IMIA NEWS 27 th Issue - July 2014 News from the International Association of Engineering Insurers Erupting volcanoes (here : Mexico's Popocatépetl as per Reuters / Handout) spew-miles-high clouds of ash over cities, townships, fields and high ways. which raises coverage issues see page 3- In this edition Nr. Topic Page 1 News from the Executive Committee 2 2 What is new on Annual IMIA Conference in Engineering and Construction Conference Revised Tunnelling Clause 3 6 Managing Risks in Offshore Wind Projects The Offshore Code of Practice 4 7 Wind turbine fire risk 6 8 Oxford project : Weather Insurance for Renewable Energies 6 9 Popocatepetl volcano covers Mexico City volcanic ash 7 10 Belo Monte Dam Brazil 8 11 Some Fire Losses 9 1

2 1. News from the Executive Committee The EC had its last meetings on 27th May 2014 in Zurich. The Minutes of Meetings can be found on (login necessary). Here are some of the key points: The preparations for the 47th Annual IMIA Conference, which will take place in Cannes/Mandelieu, France from Sept. 20th 24th, 2014, have made good progress. The preparations for the 48th Annual Conference in 2015 are already well under way. More information will be provided at the forthcoming conference in Cannes/Mandelieu. There will be a 3rd IMIA Engineering Training Course in March 2015, most probably in Berlin. As in the previous courses, employees of IMIA members will be admitted. The EC is pleased to welcome Hao Ming Zhou, Brit Global Specialties, Shanghai, China and Peter Hamilton, Sompo Insurance UK as a new associate members. Christoph Hoch has been a member of the EC from 2008 (co-opted), elected in 2009 to Having served as Chief Underwriting Officer Engineering in Munich Re he has accepted another challenge in Munich Re as Head of Greater China and therefore had to step down from his function in IMIA. Only recently he has been moving to Hong Kong. The IMIA EC recognizes his excellent contributions during these years and expresses their most sincere thanks, their congratulations and wishes him all the best in the future. Stephan Lämmle, Head of the Power & Utilities team for more than 5 years will take his position in Munich Re. IMIA hopes they may count on his support for the coming years 2. What is new on The New Tunnelling Clause can be found on shortly (more see chapter 5). Moreover, the new Offshore Code of Practice will be on until September 2014 (more see chapter 6). 3. Annual IMIA Conference 2014 The main topic of the above-mentioned EC meeting had been the forthcoming annual IMIA conference in Sept in Cannes/Mandelieu, France. Registrations have been completed, preparations are well advanced and nearly finished. For all those who will participate in Break Out sessions and in Kick Off meetings for new Working Group Papers, it would be useful to have your notebooks with you. The hotel offers free WLAN to all guests. 4. Engineering and Construction Conference 2014 Partner Re aimed at bringing together a wide range of experts from worldwide engineering and construction insurance and reinsurance markets and organized 2

3 their Annual Construction Conference from June 16th-18th, 2014 in Zurich. They offered interesting presentations on issues such as Market Overview Jürg Buff, Partner Re Soft Costs John Tutera IMIA Index Oscar Treceno, Chairman IMIA Future of Cyber Insurance Markus Bassler Full Sums Insured Daniel Abramson The Pitfall of Handling Engineering/Construction Claims in Latin America Richard Gross If you are interested to know more about these presentations you may contact Partner Re or the lecturers. 5. Revised Tunnelling Clause Together with LEG, IMIA had supported ICEIG (International Civil Engineering Insurers Group) on the New Tunnelling Clause. The Clause was presented to the market in London on July 10 th, It will now be placed on the IMIA web site together with additional information. Metropolitan Transportation Authority of New York (Patrick Cashin) - Flickr MTA photos, There is a range of tunnel clauses in the insurance market with broadly similar exclusions but with varying approaches to indemnity, the so called Percentage Limit and Monetary Limit approaches and hybrid versions of the two. The feedback from the London Insurance Market (including brokers, loss adjusters and underwriters) was that there was a general lack of clarity within these clauses, leading to disputes over the level of cover offered. 3

4 ICEIG (International Civil Engineering Insurers Group) set up a sub-committee with the remit to review current tunnel clauses and collate feedback from the various users. Following this, it was decided to draft a new benchmark tunnel clause with the aim of providing greater clarity whilst not restricting the level of cover currently available. The new LEG Tunnel Works Clause (TWC) is the result of this exercise The clause is structured into three distinct sections: It is intended that the clause be inserted as an Exclusion to the Section of the CAR policy covering damage to the works. 6. Managing Risks in Offshore Wind Projects The Offshore Code of Practice (OCoP) The offshore wind industry has been experiencing a trend towards larger and more complex offshore wind farm projects with investments well in excess of the billion dollar mark, often located further offshore and in deeper waters than in the past. They are in increasingly more challenging locations in terms of wind and weather conditions, with innovative wind turbine technologies that are reaching new capacity ranges in order to achieve economic viability and independence of government subsidies in the medium to long term. The European Wind Turbine Committee (EWTC) at the time under the chairmanship of Swiss Re was closely monitoring these developments in the face of large investment plans for a comparably young industry with very high growth expectations. These developments would potentially bring about challenges and opportunities to the engineering insurance industry and given the complexity of these projects it became clear that a comprehensive risk management approach was going to be fundamental to make this a positive experience for insurers. Point in case was the lessons learnt from the tunnelling industry some years ago, where severe losses lead to a situation where tunnelling projects became almost uninsurable. This spurred the EWTC in 2010 to sponsor the 'Offshore Code of Practice (OCoP) 1 ) initiative. The goal of the project was to develop a best practice paper on state-ofthe-art risk management practices for the construction of offshore wind farms jointly with representatives from all stakeholders involved in the realization of such projects. It was expected to gain enhanced risk transparency, identify appropriate risk mitigation measures and to keep offshore wind farms and related risks insurable in the long term for the benefit of all stakeholders. In order to focus on the core challenges of offshore wind farm projects and keep local and regional characteristics driven by regulatory differences for the implementation stage, it was decided to run the pilot phase of the project in the German market where the co-sponsorship of the German Offshore Wind 4

5 Foundation and the active support of the German Insurance Association (GDV) could be secured. A project core team was formed with representatives of Allianz, HDI-Gerling, Munich Re and Swiss Re (project lead). More than ninety participants were attracted to work in ten expert teams which represented all stakeholder groups (such as manufacturers, suppliers, utilities, vessel operators, surveyors, financiers, consultants, certifiers, re/insurers, brokers) who systematically analysed every process stage in an offshore wind project to identify and evaluate risks and propose relevant mitigation measures. Based on the first draft document additional industry feedback was obtained, discussed and included. As a result of this extensive project work the German version of the Offshore Code of Practice will be published in August 2014 via the GDV webpage. It is planned to have an English version ready for publishing in September 2014 and to present the Offshore Code of Practice at the IMIA conference 2014 in Cannes. Lessons learnt through practical implementation of the OCoP and progress made by the industry sector will keep this a living document which justifies updates on a regular basis. Likewise, roll-out in other markets with different regulatory characteristics will provide meaningful feedback. The project team would like to thank all persons and parties involved for their valuable contribution. It is particularly appreciated in times where the corporate focus tends to zoom in on maximizing profits and minimizing cost, thereby leaving limited room to deploy resources to forward thinking activities which may have the potential to shape the risk landscape of fast growing industry sectors to the benefit of the insurance industry. 5

6 1 ) European Wind Turbine Committee (EWTC) comprises of European insurers and reinsurers actively involved in the wind energy sector. 7. Wind turbine fire risk: Number that catch alight each year is ten times higher than the industry admits Nearly 120 wind turbines catch fire each year, according to new research - ten times the number reported by the industry. The figures, compiled by engineers at Imperial College London and the University of Edinburgh, make fire the second-largest cause of accidents after blade failure. The researchers claim that out of 200,000 turbines around the world, 117 fires take place annually - far more than the 12 reported by wind farm companies. see 8. Oxford project : Weather Insurance for Renewable Energies In order to fight climate change and achieve sustainable development, renewable energies must take precedence over fossil fuels. Insurance companies can play an important role in the proliferation of renewables by offering risk transfer solutions that make investment in clean energy more attractive. Weather insurance protects against the unpredictable availability of natural resources (e.g. wind, sun and water). The book assesses if weather insurance can be a business opportunity for insurers while simultaneously improving the financing of renewables. To answer these 6

7 questions, different business strategy frameworks are used to assess the attractiveness of the weather insurance industry. A demand and availability estimation of weather insurance is given, as well as a hypothesis for a market growth pattern. Finally, a theoretical explanation of the positive impact on renewable energy financing is presented. Some of the important conclusions are: (1) an important increase in the demand of weather insurance until 2020, (2) the number of weather insurance providers will almost double from 2013 to 2018, (3) by including weather insurance in CMI or IAR policies, insurers will have an advantage over competing products like weather derivatives, (4) weather insurance improves the financial risk profile of renewable energy projects, making it easier to access financing, and lowering loan interest rates. The conclusions and analyses in the book should be especially useful for investors, lenders and insurers of renewable energy projects. Albert/dp/ /ref=sr_1_1?ie=UTF8&qid= &sr=8-1&keywords=weather+insurance 9. Popocatepetl volcano covers Mexico City volcanic ash From time to time we may find reports in the media such as Popocatepetl volcano spewed a 2-mile-high cloud of ash over Mexico City over several days of eruptions. Volcanic dust from the volcano has coated cars in Mexico City and thicker accumulations coated crops, homes, and sidewalks in towns closer to the volcano. Names of places and volcanoes may vary but the facts are nearly - the same. Insurers are confronted with various considerations: Can cover be granted? What would be covered and what could be indemnified? Buildings collapsing under the weight of ash may clearly constitute a material damage, but would cleaning of roads be indemnifiable? Toll highways may have to be closed for cleaning purposes and undergo a loss of income (however, time deductibles are usually high) How to price such an event? Which is the return period and which could be the accumulation of exposed values and possible losses in the region around an active volcano? Would there be reinsurance protection? 7

8 There are organisations which inform about ash in the air, not only for aviation purposes. As an example International Civil Aviation Organization (ICAO) provides Volcanic Ash Advisories (VAA) and associated Volcanic Ash Graphic (VAG) - VAA are issued every 6 hours or sooner for ash active volcanoes with VAG when ash is detected. See also Belo Monte Dam Brazil The Brazilian government is currently constructing what would be the world s third-largest hydroelectric project on one of the Amazon s major tributaries, the Xingu River. Project Details Two dams Pimental Dam (233.1 Megawatt capacity) and Belo Monte Dam (11,000 Megawatt capacity). Both house turbines and spillways. The Pimental Dam will block the Xingu, diverting up to 80% of the river's flow to the main reservoir, while the spillway will release a minimum of 20% of its flow to the 60- mile Big Bend or Volta Grande. The Belo Monte Dam will capture the water from the main reservoir, while its spillway will release this water back into the lower Xingu River. Two reservoirs one in the Xingu riverbed, and the other on dry land, 668 km 2 would be flooded, including 400 km 2 of forest; in all, at least 1,522 km 2 will be directly affected One massive canal 500 meters wide, and a series of dykes to transfer up to 80% of the Xingu's flow into an artificial canal Between 20,000 40,000 people to be displaced Cost: Over US$16 billion (R$30 billion) The most controversial dam project facing Brazil today, Belo Monte is a struggle about the future of Amazonia. The Brazilian government has plans to build more than 60 large dams in the Amazon Basin over the next 20 years. Many Brazilians believe that if Belo Monte is approved, it will represent a carte blanche for the 8

9 destruction of all the magnificent rivers of the Amazon - next the Tapajós, the Teles Pires, then the Araguaia-Tocantins, and so on. Opponents fear the Amazon will become a series of reservoirs, its life drained away by giant walls of concrete and steel. Read more Important note: this is for information only. IMIA cannot take a position in such controversial cases. But we would like to draw your attention to the new Working Group Paper WGP 90 (15) on SRCC (Strike, Riot and Civil Commotion) which will be presented and released at our Annual Conference in September Some Fire Losses 11.1 Gas blasts in Kaohsiung, Taiwan A series of gas explosions in the southern Taiwanese city of Kaohsiung has killed 25 people and injured 267 others, officials say. The exact cause of the gas leaks is not clear, but reports say the blasts were caused by ruptured pipelines: 9

10 The blasts ripped through the southern city of Kaohsiung late on Thursday See also Norway goat cheese fire closes tunnel A road tunnel in Norway has been closed - by a lorry-load of burning cheese. About 27 tonnes of caramelised brown goat cheese - a delicacy known as Brunost with a high concentration of fat and sugar - caught light as it was being driven through the Brattli Tunnel at Tysfjord, northern Norway, last week. The fire raged for five days and smouldering toxic gases were slowing the recovery operation. The tunnel - which was said to be badly damaged remained closed for several weeks. Read the full story : hhm