Allianz Commercial: Insurance Market for Hydrogen Could Reach More Than US$3 Billion by 2030
Hydrogen will play a crucial role in driving the green transition with demand expected to surge in the coming decades. Around 60 governments have adopted hydrogen strategies, while the number of planned projects is already exceeding 1,500 globally compared to around 200 in 2021 – an increase of around 600%. To realize these projects, a total investment volume of US$680bn until 2030 may be needed, according to the Hydrogen Council and McKinsey, which will trigger a greatly increased demand for insurance to protect against risks as this investment is activated. Europe is leading the way by far with 617 planned projects and the highest total investment announced at $199bn.
While the potential of hydrogen is undoubtable, there are still challenges and headwinds to overcome. The potential size and scope of the hydrogen economy will depend on a range of factors including the evolving political, trade, and economic environment, as well as demand. Policymakers and regulators need to address costs for the development of the infrastructure, so that scaling up at a competitive level towards other energy sources is possible. Across all industries, stringent safety measures will be vital to manage hydrogen's inherent risks. This is where the insurance industry comes into play. According to Allianz Commercial's latest risk report Hydrogen: Opportunities, Uses and Risks in the Energy Transition, as hydrogen becomes integrated into the global economy, insurers can expect to see a significant increase in demand for coverage, with Allianz Commercial expecting the insurance market for hydrogen project coverage to grow to over US$3 billion in premiums by 2030.
“Insurers have a key role to play in the development of the hydrogen economy, enabling investment and innovation, and providing risk management advice and guidance. Collaboration and knowledge-sharing within this industry are essential for developing best practices and building expertise. By addressing these multi-faceted challenges, the insurance sector can support the growth of the hydrogen economy and help facilitate the transition to net-zero emissions,” says Anthony Vassallo, Global Head of Natural Resources at Allianz Commercial.
Hydrogen offers great potential, but also challenges and risks
While it holds much promise and has been used in the chemical and refinery sectors for many decades, with risks such as fire, explosion and embrittlement being already well-known, the integration of hydrogen into other industries brings a range of challenges with currently planned mega projects requiring a scale-up of risk management. Energy production facilities will involve hydrogen storage and high-temperature combustion, which can lead to leaks and explosions. In transport, applications like hydrogen fuel cell vehicles will also face risks of hydrogen embrittlement and leaks. Port operators, bunkering facilities and fuel handlers will need to manage highly flammable and cryogenic hydrogen fuels, bringing accident and contamination risks.
“Evolving technologies always pose challenges such as raising the risk of serial losses, where a common fault requires the replacement of equipment across a project or multiple projects. For example, a large hydrogen production facility could involve hundreds of electrolyzers, with the same design replicated at multiple plants. Serial defect claims have already been seen with wind turbines, leading to large losses for companies and insurers. Meanwhile, as the hydrogen industry scales up, supply chains may come under increasing pressure, with the risk of capacity constraints, and delays for replacement parts,” adds Harald Dimpflmaier, a Regional Head of Natural Resources at Allianz Commercial.
Risk management and mitigation are crucial for hydrogen projects
Given hydrogen’s unique properties and high combustibility, ensuring safety throughout the value chain is crucial. Analysis of hydrogen-related incidents shows that undetected leaks can easily lead to explosions. Equipment design, maintenance and training can help prevent the escape of flammable hydrogen gas, while the risks of ignition can also be reduced by locating hydrogen facilities in the open. Embrittlement risks can be managed using hydrogen-compatible materials and specifically designed resistant coatings.
In addition to preventing incidents, organizations can take steps to limit the extent of property damage, business interruption, and third-party liability. Buildings and facilities should be designed and constructed to withstand natural hazards, fire and explosion, and limit damage to adjacent property and equipment. Robust hydrogen leak detection and isolation systems are also paramount. Human error is also a common factor in large losses. Operational, safety, emergency procedures, and training should be frequently updated, including having robust and well-rehearsed plans in place for accidental releases.
“Given the wide reach of the hydrogen value chain and its potential uses, the implications for insurance could be far-reaching, touching on multiple sectors and lines of business over the next decade. However, from an exposure and potential claims perspective, product lines such as Energy, Natural Resources and Liability are likely to see the biggest impact from hydrogen risks over the next five to 10 years, followed by Property and Marine,” explains Vassallo.
Allianz Commercial | https://commercial.allianz.com/
