Alternative Energy: Challenges and Opportunities for Insurance Professionals
While the opportunities presented by the growing alternative energy field appear limitless, there are challenges associated with insuring these risks
It is impossible to watch the news, pick up a newspaper, or read a website without some mention of climate change and the drastic steps that will be needed to combat it.
Increasing severe weather patterns are the most obvious signs of a changing climate, and the examples are plentiful. From thousand-year storms happening every two years in the south, to record droughts and wild fires in the western states, the ramifications of ignoring the changing climate are becoming clear.
The good news is that our society is beginning to take the crisis seriously, and behaviors ae beginning to change. Whether this change is forced by the absence of a once ubiquitous resource such as water in the west, or voluntarily driven by a desire to begin fixing age old damage, the steps are the same. Conserve, reuse, recycle, reclaim.
Part of conservation is reducing one’s carbon footprint. Greenhouse gases are a prime culprit in rising temperatures and everyone is responsible for this trend, from corporations to individuals. The desire to contribute to a solution is becoming stronger, as is the recognition that corporate stewardship of the environment, while always a responsibility, is now something that might be rewarded by customers.
Businesses are now often judged by their environmental impact, and their Environmental, Social, and Governance policies are closely scrutinized. Companies are investing billions in reducing their carbon footprints, with many pledging to be carbon neutral within the decade.
This move towards environmental stewardship is leading to an evolving alternative energy industry. While this industry has been active for decades, recent government incentives coupled with the positive consumer impression of being carbon neutral have raised the stakes and accelerated activity. In April the SEC announced oversight of businesses Climate Change and ESG policies, creating regulations where companies must show and report that they are meeting their stated goals, not simply aspiring to them.
This is in turn driving a growing demand for a wide range of alternative energy solutions driven by renewable resources. While some are targeting the residential consumer, others are large utility-based solutions. Regardless of the focus, each represents new and unique insurance challenges for the agents working with both the contractors installing these systems as well as the operators of the resources.
There are of course a wide range of risks that fall into the alternative energy category. They include residential and commercial solar contractors and operators, wind installation and service contractors and operators, hydro, geothermal, and more. Additionally, the capture and conversion of animal waste gasses and methane flares in the oil patch into usable alternative fuels is a fast growing area of expertise.
The one thing all of these operations have in common is that they are new, and they each have unique exposures that make placing their coverage more challenging than expected. While a solar contractor doing residential roof top installations would seem to be a hybrid of a roofer, a plumber, and an electrician, that very combination will make many carriers nervous and push the risk out of appetite. Electric charging installation risks face similar problems. Will a carrier think of them as an electrician or will the complexity of the systems they are installing close market doors?
It is critically important that agents work with carriers that understand these new technologies. Fitting a solar contractor into a roofing program is a recipe for disaster. Finding carriers that understand the class, and have coverages tailored to support it, is very important.
Some of the unique exposures alternative energy risks all share starts with the basic fit of the operations to the carrier. As mentioned previously, many of these risks are a hybrid of other specialties. Carriers will need to be comfortable with all of these specialties to be willing to write coverage.
Many alternative energy risks have a significant professional liability exposure that goes above what a trade contractor would have. A solar contractor, for example, needs to be well versed in the mechanics of siting the panels correctly to maximize energy collection. They also need to understand the interplay of complex inverters, adapters, and interfaces to properly connect the system to both the home/building and the grid. This professional exposure is far more significant than that of a roofer and needs to be carefully considered when placing coverage.
Another significant and unique exposure many of these risks share is the environmental ramifications of their work. Pollution conditions caused by the installation of the systems, or by their operation, can be considerable.
For example, a solar installation contractor can inadvertently damage a roof leading to water intrusion and mold growth. There is also a risk from contaminants escaping from the panels themselves. Some contain cadmium, arsenic, and chromium coatings, all materials that can escape or leach from panels over time.
Installation of geothermal systems often requires either drilling a well or a horizontal trench, either of which can cut a sewer line, a heating oil tank line, or disturb otherwise unknown pollutants in the soil. Runoff from these jobs can lead to a pollution release as well, with silt and sediment often excluded under a GL policy as a pollutant.
Another area an agent will need to pay attention to relates to the efficacy of the system installed. Many alternative energy projects are built with an expected return which ultimately finances the project. Often these returns are couched in disclaimer language, but there is a rising incidence of suits related to systems underperforming what was expected. This can come back against the installer or the operator of the facility.
A final challenging aspect to consider for agents is the placement of the Property coverage. Solar and wind installations are both uniquely sensitive to environmental conditions. A single hail storm can decimate a solar field or wind farm. Earthquake, flood, and fire are all significant property risks for these facilities. Having access to the right markets, and being able to place coverage correctly are crucially important to the agent wanting to focus on this area.
While the opportunities presented by the growing alternative energy field appear limitless, there are challenges associated with these risks. Agents need to focus on finding partners who can help them meet the unique needs of this class of business. Whether those partners are individual carriers or brokers with expertise, alternative energy risks are another segment of the market where specialization will be the difference between success and failure.
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