A new report from Swiss Re states that reinsurers and insurers can play a key role in the development of the hydrogen economy through risk management knowledge and transfer.
The report, De-Risking the Hydrogen Economy: Bridging the Protection Gap, that while the risks are already known to reinsurers and insurers, their scale is changing as economies attempt to move to net zero.
The authors write: “The risks involved around handling hydrogen are not new. The insurance market has long been underwriting a suite of associated risks. However, the size and scale of exposures will be larger.”
They added: “Moreover, new players are entering the hydrogen economy and there is a risk that some may lack experience in handling hydrogen. Re/insurers can play a key role in the development of the hydrogen economy by providing risk management knowledge and risk transfer options at select points of the value chain.”
The report lays out on several risks in the production, storage and transmission, and distribution parts of the value chain. Risks within production are related to construction, machinery breakdown, business interruption, fire and explosion, and the environmental liability due to the reversal of stored carbon.
Risks in storage and transmission include in addition line breakdown and contamination in storage. Distribution risks include damage from improper handling and contingent risk around life and property.
Short-term risks, said Swiss Re, will be mainly related to the supply side and are covered by standard policies.
Swiss Re wrote: “In the short term, risk exposure will be mainly related to the production/supply side. Increased investment in new plants, both using traditional (grey) hydrogen and blue/ green hydrogen, will increase overall risk exposure. Engineering policies cover the risks associated with construction. For example, contractors all risk (CAR) insurance generally covers risks related to physical loss or damage to works during construction; delay in start-up (DSU) cover provides broad protection against delays arising from physical damage caused by peril types stated in the policy; construction liability insurance offers compensation for injury, damage and product-related claims, and marine insurance will protect against cargo, hull, production and liability exposures.”
Meanwhile, Swiss Re said that standard property insurance can cover risks in the operational phase, writing that the main covers are for fire, explosion, malicious damage, and natural peril risks. In the event of physical loss, the industry can also be exposed to business interruption risks.
The medium-to-long term, said the reinsurer, will also include risks around business interruption as the hydrogen industry expands.
Swiss Re wrote: “In the medium- to long-term, business interruption cover will gain importance as hydrogen technologies become more embedded in the global economy. Further, adoption of green hydrogen will require uninterrupted supply of renewable energy, often exposed to interruptions due to changing weather conditions. Moreover, large-scale electrolyser plants come with their own specific risk exposures that could disrupt hydrogen production. The expansion of the hydrogen economy will come with additional exposures to liability risk, requiring a raft of insurance covers such as general third-party and product liability, employer’s liability, professional liability and environmental liability.”
