Written by: Mike Tonsetic
Depending on who you ask: your insurance agent, the insurance company, or your neighbor, surprisingly you may get a different answer on from each on if you can cover solar panels on your homeowner’s insurance. This is because solar panel technology is relatively a new concept for the homeowner’s insurance companies to grasp. Reality is unless an insurer has years of loss experience to review, they cannot come up with a fair premium to make a risk like solar paneling insurable. But there is hope…
Just like not knowing which answer you may get, home insurers are constantly changing their rules on solar panels, and almost on a daily basis in FL it seems. Some do not like the fact that hurricanes seem to hit Florida more times than not. Others do not like the liability that comes with net-metering. When it comes to risks like solar panels where they cannot make a call one way or the other, the home insurers tend to either not insure the home altogether or attach plenty of coverage exclusions, especially for perils like wind damage.
The industry is confident they will soon be able to figure out an amicable solution for both the home insurers as well as the homeowners. Most likely coverage will be available through an endorsement in FL at an additional premium, just like screen enclosure coverage. Some home insurers may limit the amounts of coverage to a lower dollar amount than usual, or only cover certain perils like wind, but maybe not hail or mechanical failure. However, some home insurers are smarter than others…
Do hail claims make the argument for covering solar panels viable?
If you’re a Florida homeowner, you probably have homeowner’s insurance, and you’ve probably seen your rate jump 25-50% over the past couple of years. You’ve also probably either read about or have been informed by your insurance agent that this is all because of hail damage fraud caused by the roofing industry and trial attorneys, of which is reasonably true. Needless to say, the cost to repair or replace solar panels would cost a lot more than your average roof shingles. So why in the world would any homeowner’s insurance carrier even entertain the idea of covering solar panels?
Well, there are several factors to consider: (1) It’s a grey area when it comes to determining whether a roof shingle is actually damaged by hail or just normal wear & tear due to aging. The roofer will always argue hail damage and always focus their marketing efforts on communities with roof ages close to the end of their useful life (communities that are 12-20 years old). However, damage to solar panels is more clear-cut, and if the solar panels are on top of the roof shingles, then you can’t argue damage on one and omit the other. So, statistically roofs with solar panels are drastically less susceptible to hail fraud when it comes to homeowner’s insurance.
(2) Another interesting statistic is that homes with solar panels tend to have newer roofs of which all homeowner’s insurers love. The reason for this is roofing companies and solar panel companies tend to market to homeowners in a similar fashion and often team up to work together to close a deal. Most of the solar panels you actually see came with a new roof, and since the mass spread of the technology is relatively new, some home insurers view the equation as ‘solar panel = newer roof’. In these cases, the home insurers are willing to take on the risk of insuring the solar panel in exchange for the new roof, and the less likelihood of a fraudulent claim.
(3) Roofers also see the solar panels as a major pain during the reroofing process. The panels will have to be removed to gain access to the shingles and risk damaging the solar panels during the process, and if coverage is excluded, why take on the risk when there are plenty of roofs out there with homeowner’s insurance and no solar panels.
(4) Most solar panels come with a limited warranty and most losses happen within the first year or two from mechanical breakdown of which is not normally covered under the standard homeowner’s insurance policy.
Can I get coverage and what can I cover for how much?
While they may not broadcast the fact, there are a few homeowner’s insurers ahead of the curve whom realize and understand the aforementioned regarding losses and solar panels. Some of the companies will offer more liberal coverage than others, and even include a coverage option for mechanical breakdown.
The good news for homeowners with solar panels is that if the current trend is ‘newer roofs = lowers rates’, then logic would dictate that ‘solar panels generally = lower rates’ as well. Still, as with any & all insurance contracts, it’s become severely over-commoditized, so buyer beware in regards to the value of any insurance contract you are choosing to purchase. And just because you have solar panels and possibly a newer roof, you are still subjected to the volatility of the Florida homeowner’s insurance market, in other words, there are no guarantees.
This being said, the home insurers that do understand solar paneling tend to offer rates that are a little bit below the current Florida average homeowners insurance rates, estimated to be somewhere around 10% less on average. Most of these select home insurers will offer wind damage coverage, given the logic that most likely that damage will come from a hurricane of which are re-insurable, and therefore the homeowner’s carrier only financially responsible for a lesser portion of the sustained damage. There are even a few of these home insurers who will offer Mechanical Breakdown coverage as well of which is a great substitute for when the solar panel warranty expires. This invaluable coverage protects your solar panels from sudden equipment failure like electrical arcing among other things. However, it is important to note that no insurance policy will cover you for normal wear & tear of a product.
Why do home insurers have a problem with net metering?
Simply put, the utility companies do not want you operating like the powerplant and potentially disrupting their own service lines as everything is interconnected. In other words, they don’t want you knocking out the grid and making enemies out of your neighbors and everyone else’s solar panels in-turn. The homeowner’s insurers just don’t want to pay the incalculable cost if this were ever to happen. It’s a very similar situation to your sewer lines and as I’m sure you’ve noticed that almost all homeowner’s insurance companies limit Water & Sewer Backup coverage to a max limit of $5K, and for the same reason.
As you can imagine, if the utility company was inherently legally responsible to every other homeowner affected by such a surge, the damages would be in the millions and if it’s anything home insurers hate it’s what they refer to as ‘shock losses’ (unforeseen losses that create a severe financial toll). This is why almost all solar panel contractors require you per contract to carry $1M in Personal Liability Coverage in an effort to displace the blame and transfer the liability onto the homeowner. Even though it’s not heavily policed at all really, it is highly advisable to put into place as you could also jeopardize other contracts like your warranty for example.
Most of the liability policies that are written for solar panels are on what they call a ‘Stand-Alone Umbrella Policy’ which provides excess personal liability coverage over the standard homeowners policy. These policies almost always require the underlying homeowner’s policy limits to provide $300K in Personal Liability coverage at minimum. This is generally the easiest and most affordable way to meet the $1M requirement. However, the irony here is that if the underlying homeowner’s insurance policy doesn’t cover solar panel in regards to liability exposure, then does this negate the umbrella’s excess coverage altogether? The answer is again there is not enough historical data to even offer up a standard answer, but as the wisdom goes, ‘insure when in doubt’.
At the moment, some companies are willing to hedge against the risk as they foresee offsetting the risk drastically in other areas like fraud for example as discussed before. And then there are more conservative homeowner’s insurers who are apt to sit back and watch the match unfold before they throw their hat into the ring. If you are a homeowner with solar panels, it is 1) worth looking into the potential savings and 2) even more importantly researching to confirm you have the right coverage and enough of it as to not ever get caught with your pants down.
The best place to start this conversation is by calling an independent insurance agency like ours to get real unbiased answers & advice, as our loyalty to our clients is just as committed as it is to the preferred homeowner’s insurance companies we represent.
To read more about Homeowner’s Insurance, read our previous blog, HERE!
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