Claims and the Solar Energy Trend
Many states currently provide incentives to homeowners and businesses to encourage them to achieve zero net energy use. Combine this with the falling prices of solar panels and storage batteries, and a large number of U.S. homes and businesses could be encouraged to go “off the grid."
Morgan Stanley estimates that there are approximately 6.2 gigawatts of residential and commercial solar installed to date and predicts a base market of 240 gigawatts within the next five years. For comparison, one gigawatt can power approximately 750,000 homes.
The two main methods of obtaining solar power are Power Purchase Agreements (PPA) and Solar Leases (SL). Under a PPA, the homeowner or business agrees to buy the power generated by the system for a set price over the length of the agreement. With an SL, the homeowner or business rents the equipment and is entitled to the power that the system generates.
Claims involving solar panels entail many adjusting issues, the most important of which will be determining whose coverage will respond to the claim - the lessor's, equipment owner's or your insured's. Equally important is determining if there is a hold harmless in the lease or PPA that could defeat a subrogation claim.
Claim costs will likely increase. What might have been an average hail damage claim will become more complicated and more expensive. Consider the increased exposure from a loss of these panels on a business interruption claim. The lost tax credits, purchase incentives, sale of excess power and the increased cost to purchase the power from the utility will all become factors in the adjustment. If the structure requires modification post loss, the policy’s building code coverage (if provided) may be triggered. Specialized experts will increase the adjusting expense.
Underwriters need to be aware of the increased values and hazards at the time the policy is written or renewed, allowing them the opportunity to make adjustments on values and rates. The existing structure needs to be assessed to determine if the roof can support the weight of the solar panels coupled with a snow load and if the installation meets existing electrical codes.
Solar panels contain toxic chemicals and materials, such as arsenic, cadmium telluride, hexafluorethane, lead, polyvinyl fluoride, gallium arsenide and copper-indium-diselenide. These chemicals have the potential to be released when panels are damaged by fire, wind or hail, and may require special disposal methods. In addition, runoff from panels during firefighting activity may pollute lakes, streams and ground water.
Another consideration is the hazard to firefighters. Solar arrays can remain active during a fire, increasing the risk of electrocution. Moreover, the additional weight of the system increases the potential for a roof collapse. Firefighting becomes more difficult by decreasing the amount of space on the roof, which increases the trip and shock hazards for the firefighters.
It is important to address the risks and increased exposure associated with solar panels at the time the policy is written, through either the application process, risk inspections or both. Underwriters and Claims people need to recognize that losses involving solar panels are likely to result in higher claim costs.