Solar panel insurance critical to market

I have a view that solar energy will ultimately trump wind, tidal, geothermic and the range of other renewables being considered today. So I paid particular attention to the story about how much overcapacity there is in the solar market, resulting in thin or negative margins and many panel makers going out of business.

I don’t know what that means for the future of solar panel investment – the technology needs to progress a long way on efficiency and scale before it does succeed as the ultimate champion of renewable energy.

What is interesting is the role of insurance and insurers. Given how many panel manufacturers are going out of business, and given the cost-benefit equation for solar energy is all about an upfront investment that pays off over the long term, uncertainty about the performance of the panels in the long term is a market-killer. Insurers are stepping in to provide extra guarantees to support the long-term quality of the panels. If the manufacturer goes out of business, the insurer steps in to support the warranty.

Of course, the risk to the insurer is quite concentrated. A quick way for a manufacturer to go out of business is for there panels to demonstrate fundamental problems after a few years. In this case, the warranties will all be biting at the same time as the manufacturer is unable or unwilling to support the customers.

The failure of a few panels here and there due to random manufacturing defects is manageable, but the catastrophic risk of design flaws coming to the fore is not to be trifled with. Individual manufacturers probably use similar techniques and similar designs. An insurer could suddenly find themselves footing the bill for large segments of the market.

Sounds like the sort of product you want to start selling in the last few years of your career and then retire (on a beach soaking up sunlight the more natural way) before the claims start rolling in.  I hope this isn’t the plan and I hope the risk management in place is up to scratch.

Published by David Kirk

The opinions expressed on this site are those of the author and other commenters and are not necessarily those of his employer or any other organisation. David Kirk runs Milliman’s actuarial consulting practice in Africa. He is an actuary and is the creator of New Business Margin on Revenue. He specialises in risk and capital management, regulatory change and insurance strategy . He also has extensive experience in embedded value reporting, insurance-related IFRS and share option valuation.

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