Because solar is a still maturing industry, one of the big fears its financial backers have is that the panels on which their investment depends will not perform according to manufacturer claims.
Solar can point to few large-scale installations that have performed to warranty provisions over the promised 25-year warranty period.
Assurant, Inc. (NYSE: AIZ), a powerhouse in the insurance space for 120 years, and GCube Insurance Services, Inc., a three-decade veteran of the renewables space, have partnered to provide a new insurance product for commercial-scale solar projects between 100 kilowatts and three megawatts that addresses investors’ concerns.
“In addition to the standard property and liability insurance,” explained Assurant Operations and Industry Relations VP David A. Schroeder, “we also have a warranty component at a project-specific level. That is what is unique about our offering.”
Assurant had $8 billion in revenues in 2011, but, more importantly, $1.7 billion of that was in warranties.
Financing parties typically specify an amount of property and liability coverage they want, but haven’t had the option of doing so “on the warranty side,” explained Assurant New Venture Commercialization VP Jeanne Schwartz. But, she added, there has been concern because “the OEM [original equipment manufacturer] warranty that typically comes with solar panels is often for 25 years, but it is being offered by a company that has been in business for five years. We are able to bring some reassurance to the financiers that we can stand behind that warranty.”
And, Schwartz said, the project developer will have the option of warranty management coverage as long as the project’s property and liability coverage remains with Assurant.
“Assurant sought us out,” GCube Underwriter Erin Cullen said, “because of our presence in the renewable energy industry.” GCube began in wind in the 1980s and now covers utility-scale solar, wind, hydro, wave, biofuels and geothermal projects. But, she added, “we don’t provide warranty coverage. This Assurant product is a huge value-add because it is really the only one with warranty management available in the market.”
Assurant’s warranty management will be done through OEMs and operations and maintenance (O&M) providers in the same way that auto insurance providers use body shops.
“We started out developing a product for the solar industry because it is a rapidly growing space,” Schroeder said.
“We are really excited about this industry because of its growth prospects,” Schwartz said. A subsequent market survey of 80 developers, lenders, brokers, solar service providers and equipment manufacturers showed “the commercial space was underserved.”
Assurant is focusing on photovoltaic (PV) installations in the United States initially, Schroeder said. “We now insure eleven projects constituting over seven megawatts in three states. The largest project is in Arizona. The smallest projects are in Tennessee.”
The amount of coverage, he explained, tends “to follow construction costs. But there is also a component that is net present value of future income expected from the project.”
The cost of the premium, he added, depends on the project and the technology. “If you are in an area that has negligible catastrophic perils and the project is using excellent equipment and has been developed wisely, you will pay a lot less because your risks are lower than one that is in an area that has high [risk of] wind storms or earthquakes and is not using quality materials or workers.” For a typical project, he said, the premium would likely be “less than half a percent” of the project’s capital cost.
GCube will use its experience in the renewables sector to manage the product in the marketplace and administer it, Schwartz said. It will handle underwriting and policy issuance.
Unlike its clients in utility-scale renewables, Cullen said, this new product is likely to attract newer players who “need a little more hand-holding.” For such smaller companies, she explained, “this product takes away the stress of having to go find liability somewhere, find property somewhere and then worry about calling each manufacturer when you have problems with your warranties. This is one-point contact. You contact Assurant and you get all three coverages in one place.”
Assurant, Schwartz explained, will “be maintaining relationships with clients [and] exploring other distribution channels for the product.” Assurant is also, she said, “exploring partnerships with other financing entities, OEMs and O&M providers -- people who have a vested interest in making sure the risk is mitigated for commercial-sized solar projects.” And, she added, “we are going to be the ones paying the claims.”
But Assurant did not become a Fortune 500 and S&P 500 company and accrue $8 billion in 2011 revenues by creating insurance products on which they have to pay claims. That means the solar projects they insure are likely to be solar projects investors can win their bets on.