When talking with solar panel installers and solar developers I’m often asked, “What does solar contractor insurance cost?”
The answer is the same as the cost of “a house” or “a car”…
In other words…
This article describes how solar contractor insurance cost is calculated…
Including step by step instructions for paying as little as possible for the right solar contractor insurance.
What Does Solar Contractor Insurance Cost?
The answer to this question is, “It depends…”
There are so many factors involved.
Solar contractor insurance cost is determined by the type of insurance you need, the size of your company, the type of work you do, if your business is new or old, your revenue, where you’re located, if you’ve had any claims and many other factors…
I wish it was simple.1
A better question is: “How do you pay as little as possible for the right solar contractor insurance?”
The answer to this question is simple…
The way you pay as little as possible for the insurance you need is by doing three things:
The following are types of solar contractor insurance you will need, and some insurance you may or may not need…
1) Commercial General Liability
This is the big one… All solar contractors need commercial general liability insurance, aka “CGL”.
CGL protects your business from claims of third party bodily injury and property damage.
For example if you damage a client’s roof or if someone is injured as a result of your work, your CGL should protect you.
The CGL also provides coverage for contractual liability insurance.
Contractual liability is extremely important because you will enter into construction contracts with your clients, sub-contractors, suppliers, landlord, etc. where you may be required to assume financial responsibility and indemnify or hold them harmless.
Unfortunately, the CGL also excludes many types of claims…
For instance, the CGL does not cover injuries to your own workers. So, unless you are a one or two person company with only founders, you will also need worker’s compensation insurance for your employees.
2) Worker’s Compensation
Next is workers compensation which covers injuries to your employees who are injured while in the course of their employment.
Workers compensation is mandatory in most states and it precludes employees from suing their employers for injuries on the job. If a work related injury falls outside of workers compensation, it may be covered by your employer’s liability policy if you don’t have an exclusion.
But what if an employee damages or destroys business property of yours…
3) Property Floater Insurance and Inland Marine
Next, if you’re doing any installations, is a property “floater” or inland marine insurance.
This coverage protects your business equipment on the road or while in transport from place to place while doing your business.
Property may include solar panels provided by a supplier, your inverters, racking, equipment, tools, building materials, etc. If you also do energy efficiency work, this might include blow-in insulation machines and other expensive equipment.
Solar contractors working with SunPower are often required to carry such insurance, also referred to as a floater insurance policy.
4) Business Auto and HNOA:
Next is business auto and/or HNOA. The former protects your business from bodily injury, property damage, liability and medical expenses for vehicles owned by your business… It covers you for auto accidents and damages to property or bodily injury related to the use of vehicles your business owns.
If your business has no owned vehicles, you should still consider HNOA, or “hired/non-owned auto”.
HNOA protects your company if your employees use their own vehicles in the course of their work or if you rent vehicles in the course of your work.
5) Umbrella or Excess Insurance
Last but not least is umbrella or excess insurance, which is often required by contract. Both provide an extra layer of protection for your business.
Umbrella and excess policies are similar, but not the same.
While both provide coverage in the event that the primary insurance you carry is exhausted in a claim, or claims, umbrella insurance is broader whereas excess insurance is strictly “follow form”.
Umbrella or excess coverages are usually inexpensive to buy.
This is because they only come into play if the underlying limits of CGL, WC, Auto, etc. are exhausted in one or more claims.
Other Solar Contractor Insurance Your Business May Need
The aforementioned insurance is extremely common… However, more specialty solar insurance is often needed.
Other solar insurance your business may – or may not – need includes:
- Solar Property Insurance: For solar developers who invest in and own their own solar projects, solar property insurance protects your solar project once it is installed as part of a completed structure. For example, if you are constructing a commercial solar system >1MW you will want to protect all the panels, inverters and hardware from physical damage that could lead to a business interruption in the energy produced (aka business income) for the offtaker.
- Professional Liability: Also known as “Errors & Omissions” or “E&O”, protects your business from claims that you provided bad professional advice that a client relied upon, or failed to provide certain information, that results in financial loss to your client. If you provide solar consulting, you would want to have solar consultant insurance If you have engineers on staff that create drawings that customers rely on, you may need professional liability.
- Drone Liability Coverage: Maybe you use drones as an operations and maintenance service. Or maybe drones are used to take video of your completed projects… Whatever you do with drones, drone coverage protects your business from claims related to bodily injury and property damage you cause in the use of drones in the field.
- Solar production insurance: Protects your business if you buy a commercial solar system >5MW and you want to guarantee that the system produces the energy you’ve promised for your client.
- Cyber liability: Protects your business from cyber claims from cyber attacks, lost customer data, breached employee data, ransomware, malware or phishing attacks at your office and other damage from Internet-related perils. Community solar developers should have cyber liability because they work with many retail customers who’s information could be exposed or used for identity theft or cyber crime.
- Offtaker insurance: A form of credit enhancement or payment insurance for power purchase agreements, aka “PPAs”. Protects your PPA customers by guaranteeing offtaker payments for solar energy for up to a 10 year period of the PPA.
- Builder’s risk: Protects your business from claims related to property under construction.
As mentioned above, you may be able to save money on solar contractor insurance by packaging as many of these insurance coverages together in a single solar contractor insurance program.
Solar Contractor Insurance Cost Factors
As mentioned above, there are many different types of solar contractor insurance policies.
The cost of each type of policy is affected by one or more factors related to your operations.
The following are factors related to your business operations:
- Your Work: The type of work (operations) you perform as a solar energy contractor is very important (i.e. Are you a full service solar contractor with an installation team? Are you sub-contracting out installation…? How much of your work is solar energy vs. energy efficiency work, if any?) Full service firms, also known as engineering, procurement and contracting, or “EPC”, firms, are a common type of solar contractor operation.3 However, you may only be a solar consultant or a sub-contractor solar installer.
- Your Employees: How many employees do you have and what do they do? (Are most of your employees up on roofs or are most of them in an office?) A person who is up on a roof installing solar panels has a higher risk of injury than an officer worker sitting at a desk doing administrative work or negotiating solar power purchase agreements (PPAs).
- Your Location: Insurance rates are affected by your geographic location and local laws. For instance, if your business does 90% of its work in New Jersey and 10% in the five boroughs, you will pay less than if these percentages were flipped. Solar contractors doing business in New York City will want to make sure that they have insurance that will cover them in the event of a New York Labor Law (aka “Action Over”) claim. 4
- Height Exposures: How high up are your workers? What types of construction and what heights (how many stories) of buildings are your projects? Does your company use cranes or scaffolding?
- Engineers On Staff: Does your business make engineering drawings that are used in your construction projects? Do you stamp your own drawings or is this provided by a 3rd party professional engineer? Either way you may need professional liability insurance, aka “Errors & Omissions”.
- Claims: Frequency and severity of insurance claims (loss history) will impact what you pay for any type of insurance. Does your business have a history of insurance claims? Claims experience is one of the biggest factors in the cost of insurance. Indeed, if you have one claim you may see the cost of your insurance go up considerably… This is why it pays to get a risk management program in place for your business.
- Your Risk Retention: Self-insuring means you retain risk, usually in the form of a deductible or “self-insured retention”. The more risk you retain, the lower your premiums will be. A deductible is similar to, but not the same as, a self-insured retention. 5
- Your Contracts, Worker Policies and Safety Program: Your contracts, internal policies and procedures around safety are important to reducing your total, long-term cost of risk. Do you have a standard contract? Do you have a safety manual? Do you provide training to your employees around safety, personal protective equipment (PPE) and best practices on job sites?
The safer your business is from an operations standpoint, the less risky your business will be to insure.
Insurance Carrier Cost Factors
Solar contractor insurance cost is also affected by the breadth or narrow nature of your policy.
If you have many exclusions, you will pay less than if coverage is broader.
Other insurance cost factors are related to your insurance carrier’s classification of your business and their understanding of your business risk.
These factors include:
- Your Limits of Insurance: What amounts (limits) of insurance do you want for each type of coverage (i.e. Do you need $1 million of coverage? $2 million? $5 million? $10 million?) There is usually a correlation between higher limits and the cost of your insurance.
- Exclusions: Exclusions in your insurance policies will have a big effect on what you pay because they remove coverage. Guess what happens if your insurance policy is full of exclusions? You’ll pay less… Because you have less coverage! This is a VERY common problem when businesses shop for insurance based on price alone. You may think you got a great deal from a good carrier, but have never read the policy. The end result is that you have insurance that will not cover you when you need it.
- Business Class Codes: Carriers assign your business a general liability classification, or class code. Your business also has class codes for employees (under workers’ compensation). Your class code should accurately reflect your business operations and industry. This is often the starting point for determining what you will pay. There are many different general liability classification systems that may be used. Many insurance carriers use the Insurance Services Office (ISO) classification system, however, there is no universal class code requirement. The ISO class code for solar contractors is a five digit code 99080.6
- Rates: Insurance companies use different rates to calculate premium… General liability often use two rates: 1) operations products completed work .7 Some carriers use proprietary rates whereas others rely on guidance from ISO. As such, the same solar contractor insurance application sent to 5 different insurance carriers can receive 5 different insurance premium quotes or declinations. The premium you pay is determined by the amount of coverage you seek. An insurance policy with $1,000,000 per occurrence will cost less than $2,000,000 per occurrence.
- Exposure Base: The insurance premium is measured by your business’s operations exposure. This may be measured by payroll or by sales/revenue.
- Capacity: The amount of capacity an insurer has to write business within your industry can have an impact on what you pay. Insurance carriers have a finite amount of risk that they can underwrite. They obviously want to fill this capacity with only the “best risks” that are presented to them8 Given the choice between a solar contractor that “seems risky” and one that takes a proactive approach to managing risk, they will decline the former.
Depending on how knowledgeable your broker is, these cost factors may be outside of your control.
How Is Solar Contractor Insurance Cost Calculated?
Many insurance carriers do not want to write insurance for solar contractors…
This is because of real (or perceived) risk of claims from bodily injury related to falls from heights, exposure to electrical current, construction risk to solar contractor clients, etc.
To get around this, the insurance carriers will exclude coverage for claims related to heights, action over claims, sub-contractors, breach of contract, independent contractors, certain building types, etc.
If your company installs solar panels on roofs and you are paying only $1,000-$2,000 for solar contractor CGL and umbrella insurance, chances are your insurance policy is riddled with exclusions…
However, many solar developers have no construction or height exposure at all…!
I mean… Maybe you’re operating a solar sales organization or your business is more of a solar consultant, than a solar installer or EPC…
In which case, you should pay less.
It really depends on what you’re doing.
Sadly, these nuances are often lost on many “experts” in the insurance industry…
And if your broker doesn’t understand what you do, the underwriter(s) looking at your account will assume everyone in your company is up on a roof..!
Solar Contractor Insurance Cost Example
Sundemnity Solar Contractors wants to buy commercial general liability (CGL) insurance and expects to have $1,000,000 of sales for the coming year.
Sundemnity’s insurance carrier uses sales as an exposure basis.
The carrier calculates exposure based on a “Premises and Operations” rate of 3.812 and a “Products and Completed Work” rate of 4.067.
In this case, the calculation would be ($1,000,000/1,000) * the rate for Premises and Operations + ($1,000,000/1,000) * the rate for Products and Completed Work.
In this very basic example, Sundemnity will pay $7,879.00 per year for their commercial general liability insurance.
This example is for only one type of insurance, CGL, because every solar contractor needs CGL.
However, Sundemnity should also be smart and buy other insurance too, such as an umbrella policy and – if they have employees – get workers’ compensation and maybe HNOA/business auto as well.
The Most Important Cost Factor
At the end of the day your insurance broker has a huge impact on your business’s long-term, total cost of risk.
The simplest way to pay the least amount for the solar contractor insurance you need is to do the following:
- Work with an insurance broker who specializes in the solar industry
- Work with an insurance carrier, or carriers, that WANTS to insure your solar business
- Combine all of your insurance in one package, if possible
As described above, there are many factors involved in what you pay for solar contractor insurance…
Some cost factors are outside of your control.
However, one thing that is within your control is deciding to work with the best broker available who understands what you do.
- But it's not... If you're able to quickly go online and get an insurance quote for your solar contractor business, chances are your policy provides no coverage for what you do. So schedule an appointment with me to find out how much you can save.
- Most of my clients came to me after working with a broker who did not know much about the solar contracting, solar development or EPC business. Their former brokers had them paying too much, paying for policies that were worthless (because they provided no coverage), or couldn't find coverage for them at all... If this what you're going through, schedule an appointment with me.
- Many solar energy companies are engineering, procurement and construction (EPC) contractors. Solar EPC contractors are also known as "turnkey" solar contractors. Turnkey means that they will do everything that is needed to deliver a working solar system to the client... EPCs will design and engineer the system, provide the hardware (racking, solar panels, inverters, etc.) and do the installation and electrical wiring. EPCs will also often help with securing RECs (Renewable Energy Certificates or Renewable Energy Credits), providing information on solar tax incentives and financing options, such as CPACE financing.
- For instance, if you are pricing insurance for solar energy contractors doing business in New York, you may pay more because of the potential for claims related to " action overNew York Labor Law 240 or 241
- A deductible is similar to, but different than, a self-insured retention. With a self-insured retention, the insured bears all expenses associated with defending a claim until the expenses exceed the amount of the self-insured retention. This suggests that the sooner the insurance company is engaged, the better (this is an example of when you may need pre-claim coverage or "look back" coverage in an informal inquiry. Self-insured retentions are often found in Directors and Officer's insurance, aka "D&O". A retention imposes a layer of risk onto a solar company. As mentioned above, it is the amount a solar contractor must absorb in legal fees, etc. prior to the insurance carrier getting involved. This is one of the differences between a "deductible" and a "retention". With a deductible, the carrier is responsible defending claims from dollar $1 but the insured is required to reimburse the insurance carrier up to the amount of the deductible.
- This may or may not be the appropriate code for your business... As mentioned above, class codes are often incorrectly assigned to businesses by underwriters or brokers who are not familiar with what you actually do. Consult with your solar energy insurance broker to help determine the appropriate code that will result in the lowest premium and broadest coverage. Other class code systems include NAICS, NCCI and SIC.
- The rate you pay for each of these coverages varies by your business operations. These rates are often different, depending on the class code you are assigned.
- The way an insurance application is presented to an insurance carrier is directly related to skills of your insurance broker. A broker who does not know or care how to present your company to an insurance carrier in the right way will impact whether your application is considered, or not.