Whatever insurers may think about the presence or causes ofclimate change, one thing is certain: the business climate ischanging, and rapidly.

New technologies are entering the market for saving andsupplying cleaner energy in buildings, transport, and industry—andinsureds are adopting these “green” technologies left and right.Renewable energy investment around the world topped $257 billion in2011 (80 percent of the investment in fossil fuel capacity),approaching half of all new electrical generating capacityglobally. Energy efficiency and “green-buildings” have also becomemulti-billion-dollar markets, and growth is showing no signs ofslowing.

With all of this comes a need to assess and manage associatedemerging risks, as well as be an early mover to capture businessopportunities and stay in tune with customers who are increasingly“going green.”

I have cataloged more than 1,100 climate-oriented activitiesconducted by 378 insurance entities in 51 countries. Surprisinglymore are based in the U.S. than any other country, although some ofthe most concerted efforts are found elsewhere.

Good Intentions

Care should be taken that these well-intended efforts to curbgreenhouse-gas emissions don't have inadvertent consequences. Thatsaid, some pundits have focused myopically on potential downsides,without considering the prospective co-benefits. For example,insurers have long found facilities that institutionalize a“culture” of careful energy management experience fewer losses.

By definition, new technologies certainly lack a history of lossexperience. This fact of life has been part of the insurancelandscape since the times of Hammurabi. Consider the first car, thefirst boiler, or the first airplane. While insurers may havetemporarily shied away from these new risks, doing so would clearlynot have been a prudent or necessary long-term strategy. Instead,efforts were proactively made to engineer risk out of the greenequation.

As a case in point, whether building structures can support andremain resistant to moisture from the increasingly popular “green”(vegetated) roofs is a fair question. FM Global has offered alevel-headed response by issuing guidelines for the right way to dogreen roofs. This, coupled with their own green-buildings insuranceoffering, represents a best practice with respect to mitigatingclimate risk without inadvertently taking on new avoidablerisks. The fact that Allstate's headquarters has a vast green roofsays it all.

Beyond mitigating climate change, green technologies can evenreduce conventional risks. Many insurers note that dual-panedwindows are more fire-safe than single-paned ones (failing moreslowly under heat stress, thereby helping block and keep down thesupply of air to the fire). Pay-as-you-drive insurance helps reduceemissions from cars by rewarding reduced driving while lowering theprobability of accidents. There is a long list of similar win-winstrategies.

Pondering Comparative Risks

Insurers are even finding that some strategies reduce emissionswhile helping directly fortify infrastructure against climatechange impacts. Tokio Marine knows this, and has for over a decadebeen replanting mangrove forests across seven Pacific-rim countriesfor the dual purposes of pulling carbon-dioxide out of theatmosphere and reducing storm damages. To do this right, insurerswill want to look squarely at the whole constellation of responsesto climate change and consider their comparative risks. There is acolorful cast of characters. Energy efficiency is arguably the mostrisk-free climate change response strategy. It doesn't hurt that itsaves money as well. It mitigates risks such as vulnerability toforced power plant shutdowns during droughts and heat waves orweapons proliferation and fuel-import vulnerabilities posed by(mostly) carbon-free nuclear power. In fact, targeted efficiencymakes the electric grid more robust, thereby helping customersweather power outages.

Sadly, as proven methods of trimming emissions are delayed,concerned scientists and policymakers are increasingly looking tomore desperate approaches such as “solar radiation management” bycontinuously dumping dust from high-altitude jets into theatmosphere or flinging trillions of reflective Frisbees into space(I kid you not) to block incoming solar energy, or dumping megatonsof iron filings into the ocean to capture carbon in massivecarbon-capturing algae blooms. These strategies are feared to usherin a variety of unintended side effects such as drought—not tomention fostering complacency. It will be interesting to seewhether private companies proposing to conduct this work will besuccessful in obtaining insurance.

With burgeoning climate risks, a do-nothing strategy is ofcourse not risk-free. The wisest response is to “greenline”emissions-reduction technologies rather than “redlining” them.