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Managing Principal
PowerGuard Specialty Insurance Services

Blazing into New Warranty Territory

PowerGuard Specialty's products now include warranty, property and casualty coverages, with solar accounting for about 90 percent of its business.

Mike McMullen, managing principal with PowerGuard Specialty Insurance Services in Irvine, Calif., is making it easier for companies to be green.

PowerGuard, a managing general agency and Lloyd's of London coverholder, provides warranty and other coverages for solar and wind power projects worldwide. Its range of innovative products--such as a 25-year noncancelable warranty for solar arrays--has helped projects win financing even in the wake of the post-2008 credit crunch.

"It's really helped fast-track our path to bankability," said Troy Dalbey, managing director with the North American unit of Upsolar, a solar module maker based in Shanghai.

McMullen started his career fighting oil well fires, but moved on to safer jobs with Aon Corp. and later with London-based JLT Risk Solutions, which managed one of the market's first wind energy insurance facilities.

In 2007, he launched PowerGuard with John Hahn, former president of Tri-City Brokerage Inc., a process he describes as "hand-to-hand combat" with competitors. PowerGuard began writing property coverage for wind power projects, then moved into property and warranty for solar installations in 2008.

Products now include warranty, property and casualty coverages, with solar accounting for about 90 percent of its business and wind 10 percent, McMullen said.

PowerGuard's warranties have given a big boost to original equipment manufacturers, developers, contractors and owners of alternative energy projects. While property policies typically exclude coverage for defects in materials and workmanship, wear and tear and latent defects, the company's warranty--known as PowerCLIP--picks up these exposures. For photovoltaic solar panels, for example, PowerCLIP wraps around the manufacturer's warranty, extending coverage for 25 years. The warranty goes into effect immediately with no waiting period and is noncancelable, meaning that it remains in force even if the manufacturer goes bankrupt.

The PowerCLIP program has helped win financing for projects from banks that would otherwise have been wary of relying only on manufacturers' warranties, McMullen said.

It has also improved clients' finances in other ways: With sales of solar arrays, a manufacturer accrues liabilities on its balance sheet for the warranties it provides. A third-party warranty like PowerCLIP allows the manufacturer to remove those accruals while booking a much smaller expense for the warranty premium, he said.

PowerGuard also gives project owners flexibility on maintenance. While manufacturers' warranties can require owners to use the manufacturers' own maintenance services, PowerCLIP lets owners hire outside contractors, often saving money with no deterioration in service, McMullen said.

"I'm not the most popular guy with some of those (manufacturers)," he said.

PowerGuard's insurers have paid losses on wind turbine business. "The turbine warranty world is fraught with peril," McMullen said, noting that wind farms can be in locations where winds gust from zero to 200 mph fairly quickly, and that changing the gearbox on one turbine can cost $600,000. "You really need to know your equipment."

The solar warranty program is in its infancy, though, and loss experience is still to be determined. "We're only two to three years into this deal. We only have 23 years to figure out whether we're making money or not," he said, joking.

Tough underwriting should help. McMullen and his team spent months examining Upsolar's business before binding its coverage, Dalbey said, looking at its design and manufacturing processes and examining its financials.

"They have to do more than just kick our tires," he said. "They're very thorough, and they have to be."

Meanwhile, PowerGuard recently expanded its offerings with PowerWrap, a performance guarantee policy for solar projects underwritten by a unit of Hannover Re Group. PowerWrap guarantees the design and installation of a system, warranties its hardware and covers losses of revenue, solar energy tax credits and other costs from non-performing or underperforming systems.

The new product is an indication of the hard work McMullen puts into protecting his alternative energy clients, the clients say.

"I don't know many people who put their nose to the grindstone the way I do. And he does," Dalbey said.

-- Douglas McLeod

Seeing the Light

One of the major issues affecting the financing of solar projects has been the 25-year warranty provided by solar panel manufacturers. The warranties traditionally offered decreasing amounts of production through the life of the warranty. Without some sort of third-party warranty program, important solar and wind energy projects would not get built.

But how do you develop a product that augments a 25-year warranty? Providing noncancellable, investment-grade insurance capacity for this sort of risk was something that had never been done before.

Mike McMullen and his company assembled a world-class group of energy experts, underwriters and insurance program architects to create the only non-cancellable 25-year solar panel warranty. For McMullen, the innovation was about breaking new ground to cover new risks.

McMullen is a Responsibility Leader® because the work he has done will benefit the entire wind and solar energy value chain, including original equipment manufacturers, project developers, maintenance and equipment contractors. And his work will help in lessening U.S. dependence on foreign oil, building a greener energy industry and economy.