Amid all the bad economic news, many insurance experts are pinning their hopes on a "green revolution," now manifesting in a groundswell of public interest, government stimulus programs and building requirements for the use of renewable products and energy. These visionaries view green as a much-needed shot in the arm for the floundering economy, and a growth area for insurance. Carriers are racing to develop and promote insurance products with green options for policyholders that will allow them to rebuild green after a loss, provide incentives for green homes or workplaces, offer D&O to address the liability risks associated with climate change, even give breaks on auto premiums with pay-as-you-drive programs. Green-related coverage is offered by more than 20 carriers, including Fireman's Fund, Chubb, AIU/Lexington, Liberty Mutual, Affiliated FM, Philadelphia, Zurich, CNA, and others. According to "From Risk to Opportunity: Insurer Responses to Climate Change" by Ceres, a national coalition of investors, environmental groups and others (www.ceres.org), there are more than 600 "green insurance products," and the number is growing daily. But this burst of green activity doesn't mean the insurance industry has turned tree hugger. Carriers and agents admit that while it's nice to do good for the environment, the real green incentive is the color of money–especially in construction. "Green has taken off everywhere, with more than 100 cities around the country having ordinances about green buildings for both municipal and private construction," said David Cohen, senior director for real estate for Fireman's Fund in Novato, Calif. "This is happening everywhere, from small towns to places like San Francisco and Los Angeles." >Green construction is expected to grow to as much as $70 billion over the next 5 years, in spite of the recession, according to Marsh's 2008 update of the state of the green insurance. This is borne out in construction industry estimates. According to Turner Construction Co.'s 2008 "Green Building Barometer," 75 percent of commercial real estate executives–including developers, rental building owners, brokers, architects, engineers and others–say the credit crunch will not discourage them from building green, with 83 percent saying they would be "extremely" or "very" likely to seek the U.S. Green Building Council's LEED (Leadership in Energy and Environmental Design) certification for buildings they plan to build within the next 3 years. Projections are similar for homebuilders. Seventy percent of home buyers are more or much more inclined to buy a green home over a conventional home in a down housing market, according to McGraw-Hill Construction's 2008 SmartMarket Report For agents and brokers committed to green business growth, the groundswell of interest in green products and services represents a once-in-a-lifetime opportunity to develop a specialty that touches both personal and commercial coverage. "Our clients are more active and involved and want to know more about green insurance products," said Skip Rawstron, chair, green real estate and hospitality, InterWest Insurance Services Inc., Sacramento. "You can't pick up a magazine without reading about the importance of green." Popular interest has long since depoliticized the subject, which welcomes not only the traditional environmental supporters, but "green Republicans" who see growth in the green, he said. Rawstron first became interested in green insurance in 2003, when he was working at an agency in southern California. He began promoting the coverage the first week he started at InterWest in October 2007. "InterWest had been taking advantage of Fireman's Fund's green loss control consulting through its Sacramento facility, which was somewhat of a challenge because most of our commercial policyholders had buildings constructed in the 1960s and '70s," he said. Today, the agency has appointments with all major carriers, many of which recognize its expertise in green coverage and come to InterWest to fine-tune policy language, Rawstron said. InterWest's most popular green coverage is the green upgrade, which allows policyholders who sustain a loss to upgrade with LEED-certified materials, or rebuild to LEED standards in the event of a total loss. Fireman's Fund and AIU/Lexington provide such coverages, Rawstron said. Other popular green commercial insurance products include commissioning coverage (which covers the cost of a LEED-certified consultant), environmental (covering services such as "air flushing" for new construction), and D&O that incorporates green coverage issues through insurers including Liberty Mutual and Markel. There also are green influences in architects & engineers professional liability coverage, inland marine, builders' risk, and installation floaters for commercial construction being built to LEED standards, Rawstron said. The next big wave of growth will come from existing buildings, which will be governed by a separate and distinct standard, LEED Existing Building Operations and Maintenance, Rawstron said. "As costs go down and more property owners recognize the long-term benefits and ROI, buildings as we know them now will ultimately become much more efficient and hopefully more profitable for their owners, thus turning green into green," he said. Insurer involvement in green coverage is a relatively recent development that reflects the growing interest by their customers, primarily construction and architects adhering to the LEED standards, said Faye M. Blizzard, assistant vice president and senior account executive for Rutherfoord, Arlington, Va. "Around 2005, I started talking with Fireman's Fund about new coverage forms they were working on, which at the time happened to be green coverage. Around the same time, two of our large real-estate property accounts had built LEED-certified buildings," Blizzard said. "At that time the form was not approved in all states. Our client in Maryland had a LEED-certified office building and an apartment complex, and the client wanted to be the first to obtain the coverage in Maryland. We pushed Fireman's Fund to push the Maryland Insurance Department to approve the form by the May 1, 2007 renewal date, and it was approved for use on May 1." Although these agents are targeting green growth, most find it difficult to quantify how much consumer demand for the coverage has actually grown because it's primarily sold as part of the property package. "Green buildings usually are part of a risk portfolio and scheduled on the statement of values," Blizzard said. "For certified buildings the rate is discounted by about 5 percent. We do not break out the revenue generated from green risk." "I'd say it's less than 1 percent of total revenue right now because it's not hard to add it in the coverage form," Rawstron said. "We've only been doing this for the last couple of years. The big part of green coverage is customer retention, and gaining new business by providing our unique insight when they start building green. We know enough to be getting in at the early stages, when they're first getting their building permits." It doesn't hurt green growth projections that many municipalities and states have mandated green building requirements. "A lot of business owners in San Francisco are just becoming aware of these products, mainly because of legislation that will require certain existing commercial spaces if they are doing a significant remodel and new construction of a specific size to be LEED-certified," said Elizabeth Amisano, commercial insurance broker for CAL Insurance & Assocs. Inc., San Francisco. Similar requirements recently passed in New York, and although California and specifically San Francisco definitely lead the pack, the trend is growing national. At last count on the USGBC Web site, LEED initiatives, including legislation, executive orders, resolutions, ordinances, policies and incentives, are now in 44 states, including 186 localities (122 cities, 34 countries, 30 towns), 31 state governments, 12 federal agencies or departments, 15 public school jurisdictions, and 39 institutions of higher education across the United States–and the number is growing every day. "Our policyholders are concerned about compliance," Amisano said. "Many of the architects I deal with are now LEED certified, and while it costs about 5 percent more for them to build to LEED specifications, the expectation is that the building owner will save on energy costs in the long run." Insurers rise to the challenge Fireman's Fund started looking into green coverage in 2005, when only 700 LEED-certified buildings existed in the country, Cohen said. "But then we started thinking about coverage from a climate change perspective and saw that a real contributor to global warming from real estate perspective is the stock of existing buildings that aren't energy efficient." With that in mind, the Fund designed commercial property coverage that allows policyholders to rebuild green after a loss by replacing paints, carpeting and other materials with green products. The commercial product was introduced in the fall of 2006, the personal property product in 2008. "We saw this as something our customers were going to need even before it was a trend," Cohen said. "It's really changed the marketplace for insurance." Today, as many as 20 insurers now offer similar coverage. Travelers introduced its green building enhancement coverage in 2007 because "we recognize that the world is changing and we continually look to develop products to assist our customers manage risk while encouraging environmentally responsible behavior" said Lace Garbatini, national director of enterprise underwriting. "The green trend not only offers growth opportunities for these products, but theories suggest a correlation with green practices and a low-risk customer profile, whether it's better maintained vehicles or paying more attention to safety measures." Travelers promotes its expertise in the field through memberships with organizations such as the USGBC and EPA Climate Leaders, and demonstrates its own commitment by planning to reduce its carbon emissions 7 percent by 2011, Garbatini said. "Based on what we hear from our field underwriters, our agents are glad we are out in front on the issue," she said. "Other companies also offer similar products, but the Travelers strives to provide the added value of expertise and knowledge to help agents and customers navigate the green scene." Chubb also went green in 2007, although the insurer has been focused on the energy industry for more than 20 years, said Peter Thompson, worldwide energy resources specialty manager. For commercial exposures, green building presents a challenge because of the introduction of new, sometimes untested technologies, Thompson said. In the 1980s, when wind farms were being introduced on a large commercial scale in states like Texas, many turbines were not made or designed well and there were a lot of failures. This impacted the insurance industry, so as a market Chubb didn't pursue that business, Thompson said. "We waited until about 5 years ago, when design standards were better. Today we can provide property breakdown coverage for wind farms, where in the past we were only providing casualty coverage, auto comp, general liability, umbrella and pollution." Based on growth statistics, Chubb expects to see 40 percent growth in areas like wind and solar development, and although the insurer has no specific targeted growth for green, Thompson noted that since 2007, green coverage has grown "in the double-digit range." Chubb recently introduced a homeowners enhancement that allows green rebuilding, said Christie Alderman, new products and services manager. "This was a natural outgrowth of decades of experience working with our customers," she said. "While this coverage is especially popular with our high-net-worth customers, it's a cost-effective way for any of our policyholders to rebuild with green elements." In general, the cost for green enhancements is affordable. Chubb estimates that, in addition to the replacement cost, a green enhancement policy for a $500,000 home in Colorado will cost the policyholder about $28 for 10 percent replacement, and $139 for 100 percent, Alderman said. CNA, a relatively new player in the green arena, heard from agents and customers about the need for a product encompassing green building needs, said Katie Wilson, vice president of underwriting. "For the past 12 to 18 months customers asked if we were offering any green products, so there was enough buzz in the marketplace," she continued. "At that time, we started considering updating our building coverage." The new CNA EcoCare product, now filed and approved in most states, is a package building property coverage that allows policyholders to replace green components in the event of a partial loss. "We looked for easy things to update to green, such as ENERGY STAR appliances, eco-friendly paints and carpeting. This way, if there was a small loss in the office, they would have the ability to upgrade," Wilson said. Unique exposures Building to LEED requirements raises many unique issues for the design professional. Because LEED-certified buildings generally cost more to construct, with the implied payoff of energy savings years down the line, warranties and guarantees are a big issue, said Kate Frownfelter, senior vice president and director of the construction program for Victor O. Schinnerer & Co. Inc., Chevy Chase, Md. According to Frownfelter, most professional liability policies have exclusions for warranties or guarantees. Schinnerer, which provides professional liability coverage for architects and engineers, is seeing an increase in LEED-certified A&E firms that are not licensed as design professionals but that are conducting reviews. "We have seen an increase in firms conducting sustainability reviews that are not licensed as designed professionals," Frownfelter said. "If that's the case, the firm needs to make certain that they have a professional liability insurance policy in place." There are professional policies available for technical consultants, which would include LEED-certified consultants. Schinnerer's policy for professional liability protects LEED consultants. Additionally, most professional liability policies have exclusions for warranties or guarantees, so architects and engineers must be careful about how they promote themselves in their marketing materials, she said. Two other green-related issues Frownfelter is tracking are new product specifications and claims specifically related to LEED-certified buildings. "Many manufacturers are racing to the market with new products they allege to be sustainable," she said. "We're concerned about liability exposures if the products don't live up to performance promises on products like window tinting, air conditioning, flooring, lighting mechanisms and furnishings." On LEED-certified buildings, "We don't know what claims will come up in 5 to 10 years if the promised energy savings aren't what they were supposed to be," she said. "Risk management on green building design is very important; 75 percent of all claims are generated by the client when the building did not live up to expectations." Agents need to know their stuff These potential pitfalls make it clear that agents involved in selling green coverage need to know the market and partner with insurers who can say the same. "We're advising our clients to work with an insurer that's familiar with green practices," Amisano said. "They need to work with underwriters who are familiar with the difference between traditional and green policies to avoid gaps in the coverage." Agents must be educated as well, and the best way is to get involved with the local chapter of a group like the USGBC, "so you can understand what you're selling and the advice your clients need," Rawstron said. Keep in mind, too, that the green industry is still in flux. "It takes awhile for insurance to determine exactly how much of a better risk a green company is compared with a traditional until there are enough solid numbers for the actuaries to work with," Amisano said. "Right now there's a huge green wave, and it's only going to grow because it makes business sense as well. People will save money and the environment at the same time. The two go hand in hand."