Reworking the Insurance Playbook for Evolving Energy Sector

By Ezra Amacher

Shifting federal policy over the past year has forced the energy sector to adapt, and the rising energy demand driven by data centers and more is not stopping investment and new project development, insurance specialists say.

In the summer of 2025, Congress passed the One Big Beautiful Bill, jolting the renewable energy space by significantly scaling back green energy tax credits established under the 2022 Inflation Reduction Act.

So far, the bill has led to an uneven impact on renewable projects. Private investors have stepped in to support wind and solar, while nuclear energy continues to receive continued support, according to Katherine Gerber, head of energy and energy transition, AXA XL.

“It’s maybe not at the level of what the tax credits could have done over time, but it is still quite significant,” Gerber said.

The new federal policy hasn’t stopped planned developments in the renewable energy space, and experts say that new projects are still coming through the pipeline.

The offshore wind market, meanwhile, has come to nearly a complete halt, and has also seen a major downshift, said Katie Burke, U.S. energy and power growth leader at Marsh.

However, many renewable projects that were already under late-stage development at the time of the bill’s passing are now under construction, Burke said, and several new projects are underway.

Data Centers Fuel Power Demand

One area that keeps fueling the energy sector is the demand for new data centers. Companies that build and operate data centers are willing to pay a premium price for power, which has offset some of the investment fallout from the One Big Beautiful Bill.

“Energy demand is at such a high level right now, so any sort of power generation is going to be highly valuable,” Burke said.

Digital infrastructure, which includes the development of data centers and the energy sources that such facilities rely on, is a “huge growth area” for most insurance companies, said Gerber.

“Data centers and digital infrastructure need a lot of capacity,” Gerber said. “Most insurers are really thinking about their strategy around this, and I’ll say most of us are focusing on it.”

Gerber said AXA XL has received a lot of requests for support on the energy construction side, with support for the operational side expected to pick up soon, too.

The biggest ask is for property and builders risk coverage, Gerber said. “A lot of the support comes for covering catastrophe risks on the property side,” she said, adding that CAT exposure plays a role in what’s available in capacity in terms of the overall market.

Owners and operators of data centers are also in the market for outage insurance, a type of parametric coverage, said Burke. The product provides coverage for any liquidated damages because of an outage that’s not otherwise covered by a standard property/casualty policy.

“It’s huge when it comes to the contracts that the data centers are imposing on the (independent power producers) and the overall requirements there,” Burke said.

Data center owners also commonly purchase service level agreement (SLA) insurance, which helps indemnify them from any tenet losses.

“If there is some sort of downstream outage or loss of power, it can help protect that overall loss of revenue and exposure for the data center,” Burke said.

The enhanced interest and development in data centers in a relatively short period of time has led to simultaneous demand for electrical systems to supply the necessary power, said Kimberly Rafuse, senior risk engineer, energy at AXA XL.

“As big and as expensive as the data center is in terms of its contents, you have the same complexity there and cost to the energy system behind it to support it,” Rafuse said. Every system looks different depending on where it is and what’s available, “and what they decide they want to put in as the energy production system behind it to support it.”

‘Energy demand is at such a high level right now, so any sort of power generation is going to be highly valuable.’

Some states like Virginia have an existing power grid that can support data center development, while other places must build electrical systems from the ground up. Rafuse said that for data center projects without an existing supporting energy structure, developers may put in clean energy such as gas turbines.

One result of the massive energy demand for data centers is that natural gas has received renewed interest as a generator of such power.

“They provide stable energy capacity and energy production for a project,” Gerber said. “It’s really creating that base load reliability. And so, it can act as a backup system, sometimes it’s the primary system, but it’s there.”

Gerber added that many oil companies typically insure their own assets, which means the energy insurance industry doesn’t “necessarily see the growth” from some of those projects.

The Engineering Behind Energy Growth

As the energy industry deploys a mix of traditional energy assets with rapidly evolving clean energy technologies to meet this surge in demand, underwriters are addressing the risks of more complex risk profiles today.

For energy insurers, underwriting in an era of swift energy growth requires forward-looking risk assessment, collaboration with clients, and diversification of risk portfolios.

“Developing a culture of constant learning and development is key to addressing those constantly evolving technologies such as battery energy storage system (BESS),” said Priscilla Pazmino-Vitela, head of natural resources for the Americas at Allianz Commercial.

Whereas carriers in the past priced BESS solely for battery risk, they’ve moved “well beyond” that, Pazmino-Vitela said, now accounting for things like thermal runway and battery chemistry. “Supply chain constraints are also an important factor that we evaluate.”

To adapt to changing technology, insurers are reworking their engineering playbooks alongside external partners.

“We’re actively building our benchmarks alongside developers, original equipment manufacturers (OEMs), the industry organizations,” Pazmino-Vitela said. “This is where we really work very closely with our risk consulting team. Working with them will refine the engineering, and the safety standards will underpin how we underwrite these risks because we can absolutely continue with that capacity.”

This engineering-first approach relies on insureds actively participating in risk quality management.

“Clients that assess their tech based on real-life peer experience and insurance risk engineering recommendations, that’s a big point that we at Allianz really focus on, especially in the area of natural resources and the risks that we write,” Pazmino-Vitela said.

As emerging technologies scale, underwriters must navigate starkly different levels of technological maturity across asset classes, said Rafuse.

“Underwriting challenges for us are some of the technologies from a clean energy perspective where they are in different stages of development and/or need support from an industrial deployment capacity,” she said.

While established assets like solar and wind “can almost stand on their own without economic support,” newer energy alternatives lack deep loss histories, added Rafuse. “You look at things like hydrogen–they’re less economically viable at this point. We may have a little less data there because of their deployment rate in terms of losses.”

The tools insurers use to quantify exposure are becoming more sophisticated, as well. Underwriters are pairing on-site visits with predictive modeling and high-resolution data streams.

“We incorporate weather forecasting, operational data, satellite imagery, and ultimately climate exposure modeling into our risk assessment,” Pazmino-Vitela said. “From a client standpoint, the message really is straightforward: The more quality operational data that the client could share, the more accurately we can assess and price their risk.”

Artificial intelligence is being seen everywhere, Pazmino-Vitela said. “It seems to be becoming increasingly integrated across industries, providing additional insights alongside human experience.”

Even with access to improving AI and modeling, insurers must remain cautious with how they disperse risk.

Gerber, of AXA XL, said that while predictive analytics can improve portfolio alignment, “random events can happen.” As an example, she cited an incident this summer where a straight-line wind swept through South Dakota, causing wind turbines to fold over.

“Even if there’s really impressive predictive models, the diversification of a portfolio is incredibly important to make sure that your locations and your exposures have a spread of risk,” Gerber added.

‘We incorporate weather forecasting, operational data, satellite imagery, and ultimately climate exposure

modeling into our risk assessment.’

Soft Market Persists

Despite recurring loss events, capital continues to pour into the sector, keeping property rates down and maintaining a persistent soft market.

As often tends to be the case in a soft market, new players are eager to enter the space and provide additional capital, according to Marsh’s Burke.

MGAs and MGUs have brought “a lot more capacity, a lot more availability,” Burke said. The challenge for brokers, she said, is explaining to clients that even though cheaper options may be available to them, there remains the question of whether these newer markets will be around “when it comes back to a hard market.”

More challenging risks with loss history may see a different market, Burke said. “If there’s a significant amount of losses that they have, what does that look like long term?” she wondered.

Soft pricing can also conceal hardening and restrictions in policy language, said Karey Vaught, managing director at Alliant Energy.

“Carriers may hold or reduce the rate while narrowing coverage through lower sublimits, new exclusions, or additional operating conditions,” Vaught said.

Vaught added that brokers are seeing particular scrutiny around cyber losses, pollution and PFAS, business interruption values, and named windstorm exposure.

Energy insurance specialists agree that ample capacity for property should continue through the end of the year. However, the market overall is not uniformly soft for all lines of coverage, according to Vaught and Martin Newman, Alliant’s managing director for energy options.

Beneath the competition, “the market has absorbed substantial losses,” they said, making it increasingly likely that energy property will see a correction in pricing as the sector moves into 2027.

The casualty side of the business tells a different story, Vaught and Newman added, noting that workers’ compensation and general liability remain relatively stable compared with poor results for commercial auto and excess. This divergence in market trends makes broad labels “less useful,” they said.

Burke said she’s seen general liability and excess lines harden, citing continued losses across the industry driven by nuclear verdicts and social inflation. From a broker perspective, it’s important to look at accounts on an exposure-specific basis, she added.

“A utility with transmission and distribution lines that are exposed to wildfire is going to have a much, much more challenging excess liability renewal than those who don’t,” Burke said. “A renewable energy company that doesn’t own that kind of exposure is going to be a little bit more straightforward at the end of the day.”

As the energy market prepares for potential property repricing while liability lines remain hard, carriers and brokers alike will depend on clear communication surrounding narrowing policy language, transparent data-sharing from clients, and a thorough understanding of evolving technological risks.