In 2004, after their annual homeowner’s insurance policy came up for renewal, Kathy Kenworthy and her husband, Paul Barale, started shopping for more affordable coverage for their 1920s-era home in Oakland, California. After requesting quotes from several insurance companies and comparing rates, they applied for a policy from a full-service insurance provider based in Rhode Island. Their application was approved, and their policy went into effect immediately. Easy enough—or so they thought.
The policy stated that the structure and its contents were covered in the event of damage, theft, and other losses, so the couple assumed the coverage applied to the 3.4 kW, roof-mounted solar-electric system that they’d installed years earlier.
It never occurred to the couple that their preference for renewable energy would be a liability in the eyes of the insurance company. “Since the insurance company didn’t ask us whether we had solar panels, we never thought of them as anything but integral parts of our house,” Kenworthy says. “You don’t insure your roof or your back deck separately. We didn’t realize that solar panels might be different.”
The couple was shocked when a notice of cancellation arrived in the mail a few days after an agent photographed the house for the company’s policy records. The insurance company decided to terminate the policy, claiming that the home’s PV modules and wood-burning stove were “too risky.”
“Subsequent communications made it clear that this insurance company didn’t understand how a PV system works. They were concerned about flooding and water damage to our house from our modules,” Kenworthy says. “They also expressed concerns that the modules could cause a fire if they got too hot or that the modules might be damaged by hailstones. In Oakland, hailstones are pretty rare.”
The company eventually offered to continue the couple’s coverage, but only if they paid an additional $1,000 annually. Ultimately, Kenworthy and Barale took their business elsewhere.
Kenworthy and Barale are not alone in their frustration. Jumping through hoops and paying expensive premiums is a familiar story for homeowners with RE systems. Though the process is getting easier as renewable energy becomes more familiar and mainstream, some insurance providers still use RE systems as grounds for charging higher premiums or denying coverage.
“It’s a case of the insurance companies being afraid of the unknown,” says Jerry Caldwell, an assistant PV designer for SunPower Corporation in San Jose, California. “A PV system is like any other appliance you might put on a home. As long as the components and installation are to code, insurance companies should not feel at liberty to discriminate.”
Bob Hartwig, president of the Insurance Information Institute in New York City, attributes the higher premiums to the added value of the home. “Having a renewable energy system on your home adds value that drives up the premium because the value of the house—the cost of rebuilding the home and replacing the system—is greater. It’s no different than when insurers charge higher premiums for a finished basement or an art collection,” he says.
He adds that it may take smaller insurance companies more time to adapt to the changing marketplace. “Some companies simply don’t have the staff or resources to get up to speed on the latest technologies,” Hartwig says.
The insurance companies aren’t the only ones to blame for higher premiums. Utilities once required homeowners connecting to the grid to purchase extra liability insurance. The action helped falsely validate the notion that RE systems are “risky business” and gave insurance companies the justification they needed for higher premiums.
A paper presented at the June 2000 American Solar Energy Society Conference took aim at the risk stigma attached to RE systems, stating that “utility-imposed insurance requirements beyond typical homeowner’s liability policies create unnecessary costs that discourage customers from investing in grid-connected PV systems.” The authors—Robert K. Harmon and Thomas J. Starrs of Evergreen Energy LLC, in Vashon, Washington—found that the risks to utilities or third parties from grid-connected systems are very small.
The vast majority of net-metering laws now prohibit the call for extra liability requirements from the utilities. However, because of the potential for higher insurance rates, RE dealers, installers, and organizations commonly advise homeowners to budget for higher premiums over the life of the system. “Some insurance companies and agents may be unwilling to insure your PV system,” warns the Energy Center of Wisconsin on its Web site. “Or, they may provide insurance only if liability levels are increased. This can cost you several hundred dollars per year.”
The good news is that homeowners may soon have more RE-friendly insurance options. Some forward-thinking providers are rewarding homeowners with credits and cost reductions for their Earth-friendly energy choices.
“Homeowners generating their own power are at the leading edge of the environmental sustainability trend and need leading-edge insurance coverage for their unique exposures,” says David Valzania, a vice president at Lexington Insurance Company, a Massachusetts-based member of the American International Group.
Lexington is among a small group of insurance companies supporting renewable energy. In March, the company began offering an “Eco-Homeowner” option that provides additional coverage for homeowners who generate their own power using grid-tied geothermal, solar-electric, or wind systems. When paired with Lexington’s standard homeowner policy, the option—which usually accounts for 2% to 3% of the policy’s premium—provides comprehensive protection against damage, theft, and other risks associated with on-site power generation, including damage to the utility grid and equipment replacement. The option also doubles the limits of a typical homeowner policy for eco-landscaping, such as trees or shrubs planted to shade the home.
If a system is damaged by a storm or other “peril,” Lexington will pay the expenses for inspection, reconnection, and permits needed to get the system back online, as well as the cost of replacement power until the system is replaced or repaired to manufacturer’s specifications. The homeowner is also reimbursed for any power-generation income lost while the system is down.
“Homes with solar systems, wind systems, and green features are more self-sustaining and energy efficient overall,” says Jason Cassee, director of marketing for personal insurance for Fireman’s Fund Insurance in Novato, California. “They offer benefits to homeowners from a financial perspective and to us from a risk-management perspective.”
This summer, Fireman’s Fund launched a program that offers a 5% discount off its premium to owners of Leadership in Energy and Environmental Design (LEED)-certified homes. To start, the program will be available in 15 states—including Arizona, Illinois, Oregon, and Washington—according to Cassee. Although renewable energy systems alone will not meet the criteria for this benefit, RE systems are part of a package of features that meets LEED requirements for residences and qualifies a home for the discount.
The company also introduced an “Equipment Breakdown” option that pays self-generators up to $25,000 for any lost income and the cost of buying replacement power when a system is damaged by events like fires, hailstorms, or falling tree limbs. The extra cost of this option is about $70 per year on a $1 million home.
Both companies are bucking the industry norm that says “less is more” when rebuilding a home after a loss. Lexington offers an “Upgrade to Green” provision that allows homeowners to rebuild their homes to energy-efficiency standards, while another new provision from Fireman’s Fund allows homeowners to rebuild a conventional house to LEED-certified standards.
Some homeowners would rather not haggle with insurance companies or risk higher premiums. They skirt the issue by not volunteering information that the home has an RE system and believe that what the insurance company doesn’t know won’t hurt it. Not only is this approach illegal and unethical, it’s far from shrewd since the insurance company could ultimately deny future claims based on disclosure issues.
Joel Davidson, a PV consultant and coauthor of The New Solar Electric Home, recommends the direct approach. “PV professionals and RE users have to explain their systems to people in the same way that a doctor explains a procedure to patients. You must educate people to get their comfort level up,” Davidson says. “Through knowledge, there is no fear.”
In 1998, he and his wife, Fran Orner, took the time to educate their agent and insurance company, Oregon Mutual Insurance, about their plan to install a 2.44 kW solar-electric system on their home in Culver City, California. “We explained that we were installing a system with UL-listed equipment that is approved by the California Energy Commission, fully warranted by the installer and manufacturer, and exempt from property taxes,” he says. “They asked us to send more information, so we did. A little patience and education—that’s all it took to get them in the comfort zone.”
Even though the system was among some of the earliest grid-connected systems installed in the United States, Oregon Mutual agreed to the idea. “Once they understood what they were dealing with, they gave us the okay to proceed and only raised our premium slightly—a few bucks, nothing major,” Davidson says.
Not everyone may be as lucky as the Davidson–Orner family. Homeowners in California and other RE-friendly states may fare better than others. Regardless of the potential for higher premiums, honesty is still the best policy. Homeowners should contact their insurance provider and shop around.
At first glance, the market for “green” homeowner’s insurance seems rather bleak, especially since the leading providers have been slow to expand into this market. Neither Allstate Insurance Company nor State Farm Insurance, for example, currently offer any discounts, incentives, or special policies for homes with RE systems or other eco-friendly technologies, according to their representatives. Together, the two companies hold one-third of the homeowner’s insurance policies in the United States.
By being up-front and proactive, homeowners can raise awareness about the inequity and help cultivate demand for new insurance products. “The insurance industry has a long history of adapting to new technologies,” Hartwig says. “When homes first got electricity back in the day, it was a novel thing too. Not all insurers were willing to take on the risk, but eventually everyone did. The same was true of indoor plumbing, gas appliances, and countless other innovations. It will take some time, but the industry will come around.”
Lisa Cohn is a freelance writer who specializes in energy and environmental issues. She is the host of the “Energy Efficiency Markets” podcast and offers a free Energy Efficiency Markets newsletter at www.realenergywriters.com.