Hail Claims for Solar Projects
It is no surprise that Natural Catastrophe perils are a top priority for solar project developers, operators, O&M contractors and insurers alike. 2021 is off to another volatile start with the Flood events in New South Wales and South East Queensland, and further afield the North American winter storm in February.
With the focus of insurers in Australia traditionally on Bushfire and Flood events, Hail is now fast becoming a focus for underwriters.
Of course, technology advances in modules is changing the impact of hail, and indeed other natural catastrophe perils. Bifacial modules are rapidly taking share with most suppliers offering a glass-on-glass format. To keep weight and cost down, thinner glass is being used, which may not be fully tempered.
Some engineers have posited that manufacturers won’t be looking to thicker glass in the future but may increasing be looking to develop different types of glass, resulting in climate specific products (hail, high temperature etc.).
One of the insurance market changing hail events was the 2019 storm which hit the 178MW Midway Solar Project in Texas, USA, damaging more than 400,000 of the plants 685,000 Hanwha Q cell modules resulting in a ~USD70m loss. This event raised the issue of ‘microcracking’, which can occur in a number of ways but can often manifest following a hailstorm. Microcracking is characterised following hail losses where the glass is not broken, or has small imperfections, but there is underlying damage. The assessment of these losses is difficult as it is difficult to see, the impact may be intermittent or may take time to manifest.
According to a report by Norton Rose Fulbright , there are five distinct challenges on the insurance market as a result of hail losses:
- Microcracking Endorsements or Exclusions. These typically appear as policy amendments that place costs associated with testing for microcracks in solar panels with the insured, as opposed to the insurer. The insured must also demonstrate that more than a certain percentage or amount of individual solar modules have suffered microcracks before the policy will respond.
- Higher Deductibles. Deductibles have been increasing throughout the hard insurance market cycle, but natural catastrophe deductibles, including hail, are under particular pressure. Deductibles being pushed by insurers may be expressed as a dollar value or as a capped percentage of the claim in some instances.
- Higher premiums loaded by underwriters to account for Hail exposure. Whilst higher premiums are not new to insurance buyers, buying additional capacity for hail events will come at a cost as facultative reinsurance becomes more limited in availability.
- Restricted Hail Sub-Limits. Insurers will often limit their exposure to Hail events through the imposition of a sub-limit. Sub-limits for hail are becoming more common and it is incumbent on clients and their brokers to demonstrate a positive risk profile (location, stow angle, weather procedures etc.) in order to maximise any imposed sub-limit.
- Incontinency in policy coverage amongst insurers. As capacity reduces and insurance placements become more syndicated, additional insurers are required to complete the placement. With greater autonomy amongst underwriters (i.e. underwriters not providing follow form coverage of the lead terms) there is inconsistency amongst policy terms, sub-limits, microcracking endorsements and deductibles.
Insurers are increasingly scrutinising how hail risks are understood by clients and mitigated accordingly. Clients can differentiate their risk to insurers by providing information on:
- Module selection – are modules tempered or fully heat treated? How thick is the glass?
- Tracker algorithm – can the module get into a stow position that will minimize damage.
- Advance hail warning and central control response times.
- Consideration of location and historical weather events.
- Impact test conditions and IEC specifications.
- Racking type (stronger frame, support bars, size of modules – although it is understood this increases cost).
Another option for insurance buyers is a parametric insurance cover specific for hail. A parametric is a highly bespoke cover structured via the basis of a weather index and defined thresholds. Tracking and measurement is based on official weather statistics and third-party objective data with solutions created to a project’s unique exposure, appetite and risk tolerance. The benefits for projects are that Parametric Solutions can materially increase cover for peril specific risks, there is no burden of proof for indemnity – just weather data, and claims are paid almost immediately following a loss.
With the hardened insurance market continuing and a greater focus on natural catastrophes, how you convey to insurers your risk mitigation and understanding of hail and other weather perils will impact the results you achieve in your marketing – both in terms of cost and cover.
If you would like to further discuss the weather specific risks or renewalable energy insurance please feel to speak with Lockton’s Power & Energy specialists.