Professor Yan Haifeng, director of the School of Finance at Nanjing University of Finance and Economics, has recently pointed out that some of the 25-year insurance solutions for many China-based solar photovoltaic module providers are problematic and could cause severe loss to a PV project's financing party. The analysis appears on the website, SolarPVInvestor.com (SPVI).
Yan contends that some of the 25-year insurance product is very risky, not only in its insurance terms and transparency of policies, but also in its insurer's financial strength. In one example, Yan says an insurance company's terms infringe on the rights of the insured, financiers and others with financial obligations. Under the policy in the example, the insurance terms of the insurer define that"the insured shall not make any legal action against the insurer." Therefore, under its policy, the insured party's acceptance of its policy means the buyer has given up its right of taking legal actions.
The transparency of policies is also a big issue for the investors, Yan says. Some 25-year insurance products have many terms that force the insurance applicant to sign a non-disclosure agreement to block information release. For those under obligation, because they don't have ways to read the original content and terms of policy, their rights are unprotected, Yan says.
More seriously, Yan says, is the issue of insurers being able to take warranty risks if policy holders suffer loss and claim indemnity. In the cited example, the insurance company's accumulated limit within the next three years will be more than its net assets. Yan says situations like this represent severe financing risks for the insurer, the buyer and the investor.
However, many financing banks haven't noticed the severity of the problem and do not routinely perform in-depth inspections. As a result, PV module makers are risking huge losses and financiers even more so, Yan concludes.