Homeowners are waking up to the power of the sun.
Originally published on Renewable Energy World.com
Jeanne Schwartz, Assurant, Inc.
June 19, 2013
Growth is being spurred on by third-party ownership models that offer homeowners a strong financial alternative. Instead of paying the cost out-of-pocket, homeowners looking to tap into the sun’s power can sign long-term contracts with leasing companies to buy the electricity generated by systems installed on their roofs. By literally renting their roofs, they can shave 10 to 20 percent off their energy bills.
Homeowners eager to purchase their own system instead can take advantage of the drop in panel prices and a 30 percent federal tax credit. In addition, many states offer their own incentives for residents to adopt “green energy” power. These systems also may increase home values when the property is sold. A 2012 study by the Lawrence Berkeley National Laboratory found that existing homes with solar systems “sold for a premium over comparable homes without PV systems, implying a near full return on investment.” While the study was limited to the California market, the implications are significant as more appraisers adopt methods for evaluating for the financial value of the system.
Despite these benefits and addition of 83,000 homes installing solar energy in 2012, residential solar is not ubiquitous. The next phase of homeowners getting ready to join the solar family are among a select group of early adopters. Their mindset transcends the latest cell phone or smart TV rollout. This unique consumer group is eager to try out and adopt new ideas, technology and tools. They understand that being among the first means dealing with problems or issues that will be resolved or smoothed out over time. While they are willing to be at the forefront of the technology curve and other trends, research conducted by Assurant found they are not adverse to risk.
Leasing a solar installation can help alleviate early adopters’ concerns about the significant expense of buying a system outright and reduce their personal risk if something goes wrong. Purchasing a system can give you more control and ownership rights. Beyond bragging rights to be the first on the block to go solar, is that enough?
Homeowners and lessors must ask: How safe is safe enough? Based on their risk appetite, a sound risk management strategy can be developed. Insurance products and related services are strong tools created to mitigate potential perils and hazards that can protect the PV system owner whether it is a leasing company or homeowner from damage to the system, and reduced energy output.
Property and Liability Coverage
Severe weather and typical perils such as household fires present significant hazards. According to National Fire Protection Association, between 2007 and 2011 there was $7.2 billion worth of damage caused by an estimated average of 366,600 home structure fires, defined as one or two-family homes, manufactured homes, as well as apartments or other multi-family housing. In addition, windstorm, hail and lightning pose danger. Other weather-related risks include hurricanes, tornados, earthquakes and floods.
Property and liability coverage are basic requirements. Property insurance covers the structure of a home and personal belongings. It will protect a solar project against specific hazards such as fire, theft and vandalism, as well as weather-related risks. General liability insures policyholders for claims of property damage and bodily injury, to third parties should they be injured. For example, if an unsecure solar panel is blown off a rooftop system during a windstorm causing property damage to a neighbors’ home or bodily injury to a passerby.
Lessors of solar installations need to purchase property and liability coverage for each of their projects. Homeowners, on the other hand, may not. A standard insurance policy for a residence may automatically include property and liability coverage. It is best to check with their agent or insurance company to be sure. If not, some insurance companies will endorse a homeowner’s policy to add the coverage for an additional premium.
Installer Liability Insurance
Homeowners or property insurance may not cover damage to a rooftop during the installation process; liability coverage held by the solar installer will. Instead, home insurance may provide some coverage in the event of a third-party being injured due to the result of installer negligence. For homeowners, it is critical to check with their agent or insurance company. And it always is important for all parties to check their installers’ credentials and insurance coverage before work begins. In some cases, a homeowner also can secure an “Additional Insured” status under a Contractors Liability policy. This will provide the homeowner with limited coverage such as legal costs if they are named in a lawsuit.
Warranties are another important tool to reduce risk. Warranties guarantee that a product lives up to quality claims and will be replaced or repaired by the manufacturer if found defective. Solar panels come with, on average, a 20 to 25-year warranty and solar panel installers may guarantee their work for up to five years.
Recent industry discussions focus on solar projects experiencing a catastrophic failure shortly after start up or defects found in solar panels during installation. In these cases, warranties can help get those projects back on line. Manufacturer design flaws or poor quality are not always immediately apparent. With significant market consolidation and bankruptcies in the industry homeowners without additional protection could come up short. If a company goes out of business, it will be extremely hard for homeowners, lessors or any buyer to collect on a defunct manufacturer’s warranty.
A warranty backstop can help protect against out-of-business setbacks.These warranty management programs provide a single point of contact for all warrantied and covered equipment on a residential solar project. This means if a homeowner or lessor has a claim on warrantied equipment, the warranty management company will authorize and pay the claim, paying for labor and shipping as well.
Operations and Maintenance
Operations and Maintenance (O&M) isn’t what comes to mind when you are thinking about typical insurance. It is self-evident, however, that it is a critical component of a robust strategy to reduce project risk for the long-term. For consistent and ongoing energy production, a strong O&M strategy provides preventative, corrective and condition-based maintenance.
No matter which residential model is followed, homeowners or lessors of residential solar installations need to work to reduce project risk. While it is impossible to safeguard against all hazards and perils, there are common insurance and related services that can be used to mitigate the damage caused by unforeseen events.