Pioneering a bright future

Transcription

1 Light-emitting diodes (LEDs) Pioneering a bright future Performance warranty insurance for the LED industry

2 End consumers want low price and high quality To boost sales and to convince customers of the quality, LED retrofit manufacturers offer warranties that cover failure and work manship issues. In the case of severe claims, the manu fac turer needs to have enough liquidity to meet these warranty obligations. LED module manufacturers purchase cutting-edge LED chips The technology of LED manufacturers is cutting-edge, their warranty experience limited. In such an environment, manufacturers need to find the balance between offering reasonable warranties to their clients and maintaining investment in research and new products. Balance sheet provisions for unexpected performance claims war ranties slow down their innovation cycle. B2B customers look at TCO and financing options When entire companies and their pro duction sites switch to LED technology, this results in major investments and in large contracts and a lot of financial pressure for the LED retrofit manufacturer. Before closing the contract, B2B customers will require security for their investment. The LED retrofit manufacturer needs to be financially stable enough to maintain liquidity in the case of unexpectedly high claims under performance warranties. Risk situation with insurance By backing up LED manufacturers, we create security and credibility for the entire value chain of the LED industry. Consumer Energy savings Project finance Investor/Sponsor Sales Warranty LED manufacturer Back-up Insurer Debt amortisation Financing Security Credibility

3 Due to the technical and ecological benefits of LED lighting and to new laws, industry studies forecast an upsurge in sales in the coming years this fast-growing market is attracting many worldwide players offering innovative LED solutions to various target groups. Despite promising technologies, a reduced total cost of ownership (TCO) and superior flexible lighting options, potential B2C and B2B customers are still reluctant to completely switch to LED lights. The reasons for this are the initially higher installation costs, a relatively new technology, and few reasonable financing solutions. Corporate Insurance Partner, a business unit of Munich Re, has developed a ground breaking insurance solution that addresses real market concerns the ongoing performance of lights for a specific period of years for both colour consistency and lumen maintenance.

4 Technology risk situation A LED retrofit lamp includes many new com ponents in the traditional form factors of, say, an E27 Edison bulb or a T8 tube. However, these traditional fixtures provide several challenges for modern solid-state lighting with LEDs. On the way to LED lighting, there are several processes and components involved along the value chain of construction: an LED module consists of LED chips, phosphors for colour engineering and a protective packaging. An LED lamp includes an LED module, a heat sink, secondary optics and a driver. Technological risks can occur in all stages of the value chain: Lumen degradation Dominant cases are semiconductor wear-out due to thermal stress, deterioration in packaging materials and phosphors, as well as failure of solder joints leading to imbalanced electrical configurations. Lumen catastrophic failures These risks occur when the electrical or thermal contacts, the driver or the heat sink fails. Colour shift A shift in colour may result from ageing or degrading of phosphors, the yellowing of the encapsulate or a wavelength shift in the lightemitting semiconductor. A case for advanced LED technology From 2009, many countries in the world have taken measures to phase out incandescent light bulbs for general lighting. In Europe, municipalities are obliged to use energy-efficient solutions for their public lighting by Although LED lighting might save municipalities up to 70% of lighting energy and tremendously reduce costs compared to existing lighting infrastructures, a mandatory switch to LED lighting will require high investments for European cities, many of which are strapped for cash. Munich Re offers long-term security for the investments which improves many financing options also for the benefit of municipalities.

5 Financial risk situation Warranty obligations (without insurance) Liabilities Without insurance, warranty obligations increase year by year. Year Revenue 1,000 1,200 1,500 1,700 2,000 Liability out of year ,000 1,900 1, 800 1, 700 1, 600 Liability out of year ,200 1,080 1, 960 1, 840 Liability out of year ,500 1,350 1,700 Liability out of year ,700 1,350 Liability out of year ,000 Total liability 1,000 2,100 3,380 4,710 6,170 High savings potential with LEDs The general use of LED technology could have tremendous impact on energy savings. According to the US Department of Energy, by 2027 widespread use of LEDs could save about 348 TWh of electricity (compared to no LED use). This is the equivalent annual electrical output of 44 large electric power plants (1,000 megawatts each), and a total saving of more than $30 billion at today s electricity prices. Until now, LED warranties have generally covered catastrophic failure and workmanship issues for a period of one year. To many potential customers, this period is not long and thus not persuasive enough. Customers invest in LED technology in order to reach a lower TCO compared to traditional light - ing solutions. As the investments take three to four years to reach break-even point, longer warranties are requested by the market. If a LED manufacturer offers a longer warranty, the financial burden to bear is significant. Manufacturers have to set aside much higher balance sheet provisions tied-up capital that cannot be deployed for other purposes. However, the current situation demands extensive liquidity to seize market opportunities, to grow and to keep on driving strategically important innovations. In addition to this, balance sheet provisions often cover only a fraction of the liabilities that may arise when a loss occurs, as liabilities accumulate and increase year by year. One series of losses alone can jeopardise a manufacturer s market position or, in the worst case, its entire financial existence.

6 Our solution: LED Performance Warranty Cover Your advantages at a glance: Protect your balance sheet Corporate Insurance Partner offers innovative solutions tailored specifically to the requirements of the energy consumption sector. We help the LED industry in paving way to the widespread usage of LEDs. Our insurance solutions support you in ensuring that the ongoing performance of LED lights for both colour consistency and lumen maintenance meets the guaranteed levels for periods up to five years. This relieves your balance sheet of the long-term technical guarantee risk and frees up your capital for purposes such as investments in research, marketing and sales. Even in the event of losses due to warranty obligations, you can still achieve a certain profit margin and secure the continued existence of your business. This not only increases your own planning security but ultimately also that of investors. Attract customers and investors Increase degree of business certainty Boost business growth and market share Benefit from our technological know-how Overview LED Performance Warranty Cover By purchasing a LED Performance Warranty Cover, you achieve capital relief, more liquidity and thus credibility in the market. Energy-efficient investment Initial lump sum 3 12 year payback period Credibility Liquidity in case of claim Reduction of provisions possible USP Business enabler Performance warranty 30 50k hours/5 10 years > 70% light output Instant failure Flickering 0 t Insurance protection Adequate cover structure Alignment of interest Non-cancellable Based on warranty conditions Stress on balance sheet Liability for manufacturer Provisions Liquidity issue in case of serial loss Light bulb LED Earnings

7 Munich Re your strong and reliable partner Our solutions provide you with greater certainty for your planning, giving you more scope for growing with a dynamic market. With our innovative cover concepts, we provide protection against financially threatening scenarios in such a way that you remain solvent and thus competitive even in emergencies. About In, Corporate Insurance Partner pools expert resources and know-how in the field of renewable energies. Numerous innovative insurance solutions for photovoltaic, concentrated solar power, wind and other green technologies such as LEDs are being offered by this team in its worldwide activities. About Munich Re Munich Re s strong balance sheet, a solid AA rating and extensive operations worldwide means we have the expertise and capacity to deal with a wide range of different risk events. Contacts Michael Schrempp Tel.: mschrempp@munichre.com Julia Moser (Europe) Tel.: jmoser@munichre.com Georg Schulz (US) Tel.: gschulz@munichreamerica.com Dr. Ulrich Bohnert Tel.: ubohnert@munichre.com Roadmap for cooperation: Risk mitigation/business-enabling process The business-enabling process our structured approach ensures a solution that fits your needs. Pilot Project Risk Situation Non-Disclosure Agreement Financial (Liabilities & Warranties) Technology (Product & Production) Risk Transfer Insurance Cover Insurance Policy Marketing/Project Support

8 Imprint 2014 Münchener Rückversicherungs- Gesellschaft Königinstrasse München Germany Responsible for content Picture credits Cover: shutterstock p. 3: istock p. 6: Fotostudio Meinen Printing Color Offset GmbH Geretsrieder Strasse München Germany Order number Disclaimer Corporate Insurance Partner is the description of a number of business units across different legal entities of Munich Re that provide individual solutions for medium-sized and large industrial clients. The legal entities include Munich Reinsurance Company in Munich (and its branches in Paris, Singapore, and Hong Kong), Munich Reinsurance America, Inc., and Great Lakes Reinsurance (UK) PLC (and its branches in Australia, New Zealand and Switzerland). Through our ongoing cooperation with other international units of Munich Re, we are always close to our clients. Policies are written by member companies of Munich Re. Certain products are not available in all states and jurisdictions. Some coverages may be written on a non-admitted basis. Coverages provided by surplus lines insurers are available only through licensed surplus lines brokers. Any description in this document is for general information purposes only and does not con stitute an offer to sell or a solicitation of an offer to buy any product. Not if, but how