Technology Performance Insurance

Technology Performance Insurance addresses performance risk in the operation of a technology by guaranteeing a level of production sufficient to meet debt servicing or by supporting the warranty obligation of the insurance provider, this type of specialist insurance can be used to facilitate financing.

An A+ rated carrier will insure projected production/revenue such that the lender can rely on coverage in the event that production is insufficient to meet debt service for the duration of the Off-Take agreement.

A Performance Insurance policy will directly cover Losses/Production Shortfalls due to:

• Defective production line design
• Faulty material
• Faulty workmanship
• Improper or insufficient production line maintenance

The challenge facing Private Equity houses and institutional lenders wanting to invest in new and cutting edge technologies is in establishing the necessary confidence in the production processes of the venture and substantiating the anticipated revenue streams to the benefit of all the stakeholders involved in the project.

From the entrepreneur’s perspective, the requirement is to effect an insurance cover for new technology risks associated with the manufacturing process so as to secure initial financing.

The solution to both these problems is a newly developed specialist financial insurance providing performance cover.

The insurance protects long-term investment with a guarantee of project output and quality.

This type of performance insurance can also be extended to cover the plant commissioning risks inherent in a new venture.

Performance Insurance – Operations

Key considerations include:

• Scope of cover – performance insurance is intended to cover the manufacturing process only. It is not intended to provide cover for the supply chain, lack of feedstock or lack of off-take.
• Cover basis – either Revenue or Loan (or debt) repayment.
• Policy term – this can be for the life of the funding structure or a shorter period. Currently cover can be provided up to ten years duration.

For the performance cover we develop an insurance structure with an attachment point or ”trigger” (Required Output) and policy limits (both on an annual and aggregate basis) to guarantee a minimum level of production adequate to generate enough cashflow to support the Project’s financing during the policy term.

Performance Insurance – Start-up repairs

Key considerations include:

• Scope of cover – the policy insures the plant commissioning risk. Cover is provided for related repair costs necessary to meet the Start-up Performance Test requirements.
• Policy term – up to a specified period from Mechanical Completion of the Project.
• Policy structure – we assess an appropriate deductible level and policy limit.

Insurers currently offer Start-up Repair cover as an add-on to Performance insurance not as a stand-alone cover option.