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As clean energy technologies evolve and increase in sophistication, so is insurance coverage for companies involved in the clean energy business.
In most cases, green energy firms require the same commercial property/casualty insurance that more traditional industries purchase.
However, experts say the challenge is insuring the performance and longevity of energy-efficient systems and products, which are constantly changing.
“There are certain types of risks that are much more difficult to insure and a lot of the carriers, I think, are still challenged with trying to provide those solutions,” said Kirstin Simonson, St. Paul, Minn.-based underwriting director with The Travelers Cos. Inc.
Insurers are working to cover a growing clean energy market. Green companies—including solar, wind, biofuel and other energy-related firms—received nearly $9 billion last year in venture capital investments, according to San Francisco-based renewable energy research and advisory firm Cleantech Group L.L.C.
That is up from $7.9 billion invested globally in such firms in 2010.
In North America, clean energy firms received $1.42 billion in venture capital investment during the fourth quarter of 2011, up 18% from the fourth quarter of 2010, according to Cleantech.
While it is generally agreed that solar, wind and geothermal power are clean energy, industry and advocacy groups often disagree about whether other industries, such as mass transit or recycling, should be grouped in with high-tech “green” companies (see story, page 19).
As the clean energy sector expands, companies and their investors are looking for insurance that can protect them from potential liabilities, as well cover energy projects and tools that often are contracted to provide decades of power generation, said Cleantech Executive Vp Greg Neichin.
“There's long-term performance risk, and I think you see that in solar, wind (and) energy efficiency projects,” Mr. Neichin said.
More insurers are setting up specialized clean energy units, and the insurance market for those businesses has become “very competitive,” said Rick Niehaus, New York-based senior vp of energy for Liberty International Underwriters.
As a result, clients are seeing favorable rates, deductibles and policy terms, he said.
“They're getting very competitive insurance rates, and they're able to negotiate their premiums and probably negotiate smaller deductibles and broader coverages,” Mr. Niehaus said.
Still, there are challenges to underwriting some risks associated with clean energy companies. As technology advances across various clean energy industries, underwriters are working to cover those products while ensuring the business is profitable.
Insurers often are tasked with devising risk models for newly developed solar panels, wind turbines and other energy-related prototypes that are increasingly efficient, but don't yet have a proven track record of performance, said Travelers' Ms. Simonson.
“There's just no historical data” for newer technology, Ms. Simonson said. “So when you think about what an insurance company is really looking at when they're trying to develop a product, they're looking back as to how do we plug this into our standard model. And there's just no information.”
Michael Buckle, London-based renewable energy practice leader at Willis Group Holdings P.L.C., said insurers often are hesitant to underwrite energy-related equipment or projects that have existed less than 12 months.
“They won't just underwrite any new piece of invention that comes out,” Mr. Buckle said. “They're looking for some certainty around the design and the build.”
The products produced by one company, such as a solar panel manufacturer, also may be entirely different than those made by their peers, said Amy Ingram, Tampa, Fla.-based worldwide clean tech segment manager with Chubb Commercial Insurance.
“Two companies that actually work in the same space could be so different that it really is an individual risk underwriting approach,” Ms. Ingram said.
Willis' Mr. Buckle said insurers are developing in-house teams of experts to conduct intensive due diligence on clean energy devices that they plan to insure.
“I think the insurance market will do as much due diligence as a financier would on a new project,” Mr. Buckle said.
And Liberty's Mr. Niehaus said insurers are finding ways to cover even the newest technologies. “You can always do it through policy language, through pricing and other terms and conditions,” he said.
Experts say they expect the insurance market for clean energy to continue growing as the sector grows and produces a greater proportion of overall energy generation.
Travelers' Ms. Simonson said it will be critical for insurers to work closely with the clean energy sector to mitigate potential risks for the maturing industry.
“It's really about collaborating and having that open dialogue,” Ms. Simonson said.
While many associate the clean energy sector with solar and wind power, the industry includes a wide variety of firms working to generate environmentally friendly energy.