Are insurers ready for solar power's rapid growth?

Solar PV systems are attracting over $500b in investments in 2024.

The rapid growth of solar power installations has created new challenges for the insurance industry, with solar photovoltaic (PV) systems attracting over $500b in investments in 2024, according to the International Energy Agency.

However, these systems, especially rooftop and floating installations, pose significant fire and weather-related risks that insurers are closely monitoring, according to Allianz Commercial.

Rooftop solar PV systems, increasingly common in commercial and industrial buildings, have emerged as a key concern due to the fire hazards they introduce. 

The installation of PV modules on roofs introduces an ignition source and affects fire growth, making it difficult for firefighters to manage incidents effectively. 

Recent high-profile fires in buildings with rooftop solar have underscored this risk. In the event of a roof fire, the consequences can be severe, potentially leading to a total loss of the building and substantial business interruption claims.

Ground-mounted solar farms, whilst less susceptible to rooftop-specific risks, also present insurance challenges. 

Vegetation near these installations can increase the spread of fires, potentially damaging more modules and support structures. Wind damage is another concern for ground-mounted systems, particularly when poor storm-water management compromises the structural integrity of the support frames. 

These risks must be factored into insurance policies and risk management strategies for solar projects.

Floating PV farms, which are becoming more popular in regions with limited land availability, also bring unique insurance challenges. Large storms can damage the mooring systems of these floating structures, resulting in property damage and potential business interruption losses. 

Furthermore, incidents like fires on floating PV plants could lead to pollution of the surrounding water bodies, adding a layer of liability for insurers.

The rapid expansion of solar capacity worldwide, driven by technological advances, falling costs, and supportive government policies, is creating both opportunities and complexities for insurers. 

Whilst solar PV installations are expected to meet half of the growth in global electricity demand by 2025, the insurance sector must adapt to the evolving risk landscape, balancing coverage for these new risks with effective loss prevention measures.