What Insurance Policies Do Cleantech Companies Need and Why?Insurance Explained
Sustainability is a very important topic throughout the world today, increasing in importance as we continue to face the fact that our natural resources are undeniably finite and must be preserved. Producing energy in the cleanest way possible is one of the pillars of sustainability, which is why clean energy technologies have been on the rise.
The clean technology industry, commonly referred to as cleantech or greentech, features a long list of companies that are dedicated to improving energy delivery and storage methods, often using solar, wind, and water as power sources to present an alternative to fossil fuels.
The constantly increasing focus that’s being given to reducing the negative consequences that industry has on the environment has led to the rise of cleantech, spurring companies to innovate and experiment with not only different power sources, but also designs, materials, and equipment that is less detrimental to the environment.
And as is the case with every new and innovative industry, forging new paths and disrupting age-old ways of thinking and doing things will always be accompanied by a certain level of risk.
Types of Cleantech Startups
Generally speaking, cleantech companies can be split into two main categories: companies that are focused on energy production and efficiency and companies that focus on other environmentally friendly endeavors that don’t specifically involve energy. Here’s a more granular look at some of the most common categories in which cleantech companies operate:
Energy Generation: Enabling and promoting the use of renewable energy resources, through the use of solar, wind, hydro, sewage, garbage, waste, and other alternative green sources. According to a Bloomberg report, wind and solar will make up almost 50% of world electricity in 2050.
Energy Storage/Distribution: Finding greener ways to deliver power to people and giving both residential and industrial electricity users more control over how they are getting their energy, storing it, and using it.
Energy Efficiency: Developing methods of conserving energy at home and in industry. LED lighting and smart plugs are good examples of innovative technology that would fit into this category.
Agriculture: Creating the future of farming by developing technologies and methods that will decrease the resources need to produce food. These companies focus on food sustainability and security and making improvements to the supply chain.
Water: Technologies that focus on water conservation and finding better ways to treat, use, and distribute clean drinking water.
Waste: Focusing on business models and material usage related to waste management, waste reduction, recycling, and reuse.
Transportation: Working to not only improve the mobility of society but also decrease the environmental consequences of transportation by reducing pollution and improving fuel efficiency. The most common example is companies that create vehicles that are powered by electricity and other greener fuel sources.
Information and Communications Technologies (ICT): Decreasing resource consumption and environmental impacts related to technology in the realms of software design and development, computer hardware, web applications, mobile applications and information technology in general.
What Risks Do Cleantech Companies Face?
The main difference between the cleantech companies that work with energy and most others is is the phase of work in which risks are more prevalent. For companies that are producing, distributing and storing wind, solar, hydro or any other type of clean energy, a majority of their most serious risks are related to the property itself. Building risks and risks of electrical and mechanical failure are most notable, considering that cleantech companies often have equipment in rural locations close to wildfires zones, sophisticated equipment susceptible to electrical surges, or labs in their building working with chemicals, solvents, and flammables that increases the risk of loss.
Property protection is critical for these types of cleantech companies. Damage to your property, expensive proprietary equipment, research documents, or any other supporting materials could represent a serious setback for your company.
Risk in later phases – once the product, service, or technology is established and running – remains and is very often of a contractual nature. With many of these cleantech companies operating online, cyber liability and data breaches are also massive concerns that need to be taken into serious consideration, considering the fact that a hacking event could easily wipe out years of data and research.
Highly-Publicized Examples of Insurance at Work for CleanTech Companies
- AES Clean Technology Inc. sued several individuals, alleging they launched a direct competitor while still employed with the company. AES claimed that the employees used company secrets to start a competing company, while still fulfilling major roles at AES. See: Cleantech business alleges workers started competing business, stole clients
- The suit alleges that KIOR made “false and/or misleading statements, as well as failed to disclose material adverse facts about the Company’s business, operations, and prospects” having to do with its flagship plant. The startup went public in 2011 with the promise of turning biowaste into biocrude, but later struggled with missed production targets and faltering financials. See: Lawsuit Accuses KiOR of Misleading Investors
- Attis Industries, Inc. announced that its joint venture partner, GS CleanTech Corporation, a wholly-owned subsidiary of GreenShift Corporation, filed its appeal of intermediate judgments issued in CleanTech’s pending patent litigation against corn ethanol producers for infringement of five of CleanTech’s eleven issued corn oil extraction patents. See: Attis Industries Joint Venture Partner Files Appeal in Patent Infringement Case
Cleantech Insurance Needs
Buying insurance and putting together the right startup insurance program is the best way to protect your cleantech company and enable it to thrive and grow in order to eventually attract venture capital investors or procure government contracts.
Let’s take a look at some of the most vital insurance products that cater to the specific risks and insurance needs of cleantech and greentech startups.
Commercial Property Insurance: A commercial property policy will protect all of the property that is vital to your business, not just your building, factory, or laboratory, but also any and all of the equipment, furniture, inventory, materials, and anything else your cleantech company needs to operate. The limits and exclusions of your commercial property policy will depend on your location and the level of property damage risk that is associated with it. A good commercial property policy will protect against loss of income in the case of property loss and provide net income and expenses during the rebuilding period. It’s worth noting that perils such as earthquake, flood, and wind are often excluded unless endorsed.
Workers’ Compensation Insurance: Depending on the type of work you are doing, cleantech companies might run a higher risk of workplace injuries than most tech companies, especially if factories, plants, or laboratories are in question. A workers’ compensation policy is mandated by law and will pay the costs of employee injuries, including hospital bills, lost wages, rehabilitation, and even death benefits in the most tragic cases.
Commercial Crime Insurance: If an employee or a third-party entity commits a crime against your company that results in losses, a commercial crime policy will cover those lost assets. There are several ways an employee can steal from their employer, examples include theft of physical assets, forgery of checks, counterfeiting, and embezzlement, to name a few. It’s very common for third-party theft coverage to be required contractually in case one of your employees steals from a client. Petty theft, fraud, burglary, and property damage are typically covered by a good commercial crime policy, which will reimburse the money you lost as a result of these criminal acts.
Equipment Breakdown Insurance: This policy will cover losses related to a mechanical or electrical breakdown of your work equipment. The coverage will cover the costs of replacing and repairing the equipment. If any property damage occurs as a result of equipment damage, this policy should cover those costs as well. Equipment breakdown insurance can also cover loss of business income related to equipment failures.
Cyber Liability Insurance: All technology companies operating today run the risk of being attacked via the Internet and should, therefore, purchase cyber liability insurance. If your cleantech company suffers a cyberattack or data breach, a cyber liability policy will cover cases of data loss and recovery, computer fraud, and cyber extortion. This policy will also pay the costs of notifying users affected by the cyberattack, the insurance policies of the affected victims, civil damages resulting from class-action lawsuits made against you, business interruption loss of revenue, and the cost of computer forensics to help determine how the cyberattack occurred and how a similar attack could be prevented in the future.
Premises Pollution Liability (PPL) Policy: Just because the focus of cleantech is to decrease pollution doesn’t mean that problems can’t arise in the process that could potentially lead to pollution issues. Legislation and regulations are always changing related to environmental liabilities, which makes having premises pollution coverage important if your company is working with risky materials and models. A PPL policy will cover both gradual and sudden/accidental pollution, on-site pollution clean up, as well as historic conditions and operations exposures. Third-party bodily injury and property damage is also covered in most cases of standard PPL.
Directors & Officers Insurance: Directors & officers insurance will protect your leaders and board members from claims related to breach of fiduciary duty, non-compliance, lack of corporate governance, and the misuses and misrepresentations of company funds and assets respectively. If your company is interested in attracting venture capital investments, VCs will insist that a D&O policy is in place before allowing anyone from their organization to join your board.
Employment Practices Liability Insurance: Allegations of wrongful acts brought by employees against the company are most likely covered under EPLI. A good employee practices liability policy will cover claims against your company related to sexual harassment, negligent evaluation, wrongful termination, wrongful demotion, failure to promote, defamation, and just about any type of discrimination.
Errors & Omissions Insurance: Since cleantech and greentech companies often provide services that have the potential to result in financial damages to their clients, they should strongly consider securing errors & omissions, or professional liability insurance. If your company fails to meet its contractual obligations to a customer or partner in any way, whether failing to deliver a product or service on time or not delivering the product or service as it was advertised and agreed upon, your company could face litigation. A good E&O policy will protect your cleantech company from unintentional errors and product failures that can cost your clients money, such as bad advice and failure to perform professional services.
Key Person Life Insurance: This is actually a life insurance policy that companies take out on someone who is absolutely critical to the success of the organization. In the tragic event that this key person dies or becomes disabled and can no longer contribute to your company, key person insurance policy will pay the beneficiary (usually the company) the amount of death benefit on the policy declaration page, usually a $1 million limit. These funds can then be allocated toward the hiring of a new key person and help replace the likely loss of revenue the company would incur.
Intellectual Property Insurance: In an industry such as cleantech where it’s all about innovation and coming up with new and never-before-seen solutions, protecting your intellectual property can become extremely important. IP insurance is expensive but often critical for providing defense against infringement claims served against the company.
For those that have experienced property damage recently, we’ve put together this quick review of the path to property damage recovery and preparing for the claims process.