The solar insurance landscape is changing almost as fast as the industry. Whenever a development occurs that presents a new risk, an insurance company is bound to come up with a solution. Smart buyers analyze whether insurance is the best solution to mitigate a particular risk. The good news is the falling price of solar systems also reduces the cost of required property and liability insurance and frees up financial resources to protect against other project risks.
Here are four potential solar insurance products – on the horizon for the industry:
• Yield guarantees. In many tax equity markets, such as low-income housing, yield guarantees have existed for quite some time. Look for these to emerge for solar as well. This coverage protects a tax equity investor’s financial return and is seen as a comprehensive guarantee that can drive more tax equity investment into the market. As an example, an investor who expects a 12% yield would purchase coverage to ensure that the yield they collect will not fall below 8%.
● Tax equity recapture. Another product designed to increase investment in the market is coverage for investors who may be reluctant to take advantage of the high yield tax equity investment can generate. These investors fear the tax credit may be re-captured by the government if there is a total loss of a system. For example, if a solar installation burns to the ground within five years, and it not re-built, then the credit is recaptured by the government from the investor. Such incidents substantially reduce or eliminate the investor’s expected return. Insuring against this possibility can help would-be investors get comfortable with this admittedly complex investment opportunity.
● Workmanship coverage. Due to the exponential growth in the industry, many challenges with manufacturer and workmanship quality continue. A “workmanship” policy provides for reimbursement if a solar system is installed incorrectly, causing damage to the system or a shortfall in projected energy production. For homeowners interested in purchasing solar systems this coverage adds an additional layer of protection to the equipment warranties and supplemental products that uphold warranties even if the manufacturer is unable to do so.
● Bundled Operations and Maintenance (O&M) plans and warranty products. Preventative maintenance is critical to optimizing performance long term. O&M combined with warranty management products provide the most comprehensive protection available, adding a financial backstop in the event of manufacturer insolvency. The combination of these services enable better budgeting for planned and unplanned maintenance expenses and more efficient protection against problems that threaten energy output.
All risks and the solutions to mitigate and transfer them will continue to evolve. These insurance products and protection offerings reflect the current state of the solar industry and perceived risks. Undoubtedly, these products will continue to be refined as discussions about acceptable risks continue among market participants.
By Jeanne Schwartz, vice president of new venture commercialization at Assurant
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