Marsh McLennan Report Suggests Alternative Risk Transfer Solutions for Power Grid Transition

As nations and businesses look to bolster energy security, it is imperative to explore ways to build for a more efficient, reliable and sustainable future. Marsh McLennan’s report, Making the Switch: Navigating the Smart Grid Transition, discusses how innovative approaches can help manage disruption and accelerate innovation across the energy sector. Guy Carpenter is a business of Marsh McLennan.

For example, alternative risk transfer solutions such as catastrophe bonds and parametric insurance policies can help mitigate long-term exposure and build resilience. Presently, more than USD 2 billion of capacity is available for energy and renewable energy-related risks in the global insurance market. As frequent cyberattacks and extreme weather events threaten to increase premiums, proactively negotiating these arrangements goes a long way toward ensuring insurance affordability.

A parametric cover helps provide resiliency, working to complement traditional indemnity coverage. With these covers, a predefined benefit is paid, based on a predetermined threshold being reached, such as earthquake magnitude or sustained wind speeds.   

Parametric solutions eliminate the traditional claims adjustment process, which relies on assessments of actual damages, which can take months to complete. In contrast, recoveries provided by the parametric mechanism are accessed without dispute and within a short time period. This feature makes parametric solutions appealing when transparency and speed of payment are priorities.