Not too many years ago, “green” looked like the new black forproperty-casualty insurance agents. Now, many see green in shadesof gray due to the slow economy, lack of capital investment and nodefinitive compass to where green growth will occur and how it willbe sustained.

American Agent & Broker asked readers to weigh inon the green insurance products market. The vast majority ofagents—86 percent—said they are not targeting green insuranceproducts for future growth. And 83 percent say they have not seenincreased demand or need for green products from clients in thepast year. Still, agents were nearly evenly divided when askedwhether the promise of green growth has been “oversold,” indicatingthat while demand is low, many still see its untapped potential(seethe survey sidebar).

Brian McCarthy, CEO of Energi, sums it up this way: “Right now,the (green) train is going 20 mph. When capital comes into themarket, that train could be going 110 mph. Increased cost of energycould add some political velocity.”

According to the AA&B survey, agents who do sell green, sellmostly construction-related coverage, followed by those who sellprofessional liability, green home coverage and alternative energyproperty risk.

Related: Read the article “How a disaster can endanger LEEDcertification” by Damon Gersch.

The most popular form is the “green upgrade” coverage. Followinga covered loss, “traditional” buildings will be upgraded with greenmaterials and equipment rather than “like kind and quality”replacement coverage. Such policies also cover businessinterruption that occurs during the time needed repairs are made.Green repairs may take longer than repairs with like kind andquality materials.

Construction: Where the Green Grass Grew

From her office overlooking historic Glastonbury, Conn., LindaBaronowskus, CPCU, CRM, saw green's luster. She values green as apersonal responsibility to the planet as much as a viable economicbusiness approach. Real estate investors sought her advice oninsuring new green construction or refurbishing older commercialbuildings to green standards. “In 2006-2009, green was the buzz andbanks were still willing to lend,” said Baronowskus, whose focus asaccount executive at the Smith Brothers agency isconstruction-related insurance.

As capital dried up in the financial crisis, so didconstruction. “We're not seeing much demand at all now, thoughwe've seen some recent movement to make green buildingimprovements,” Baronowskus added. “There just aren't a whole lot ofnew structures going up, and if there are, fewer are seeking LEEDcertification.”

LEED is the U.S. Green Building Council'scertification process that sets forth standards for architects andresidential and commercial contractors that choose to use greenmaterials, techniques and mechanical systems. In the latter half ofthe last decade, LEED certification began to emerge as a mainstreamtrend in commercial construction. That's changed.

“Demand has been low and part of that is the recession,” agreedRod Taylor, managing director of Aon's Risk Solutions'Environmental Services Group. “There isn't nearly the kind ofinterest in new green construction that we had in the `boom'years.”

Large companies such as Hearst Publishing, Frito Lay,Livestrong, Marriott and Eaton Corp. have built trademark,LEED-certified home office buildings. Locating leased offices inLEED-certified buildings is considered desirable by certainbusiness tenants. But much of the new green commercial constructionin the past two years is occurring in the healthcare industry,where healthy buildings are part of the mission statement, Taylorsaid.

Though well-versed in pollution, professional liability andrelated GL packages for waste handlers/recyclers, environmentalcontractors and other customers, Denver-based Freberg EnvironmentalInsurance (FEI) has seen only modest increases in demand forinsurance products for “green” industries such as wind, solar andgeothermal contractors and bio-fuels producers.

Related: Read the Mark E. Ruquet article “Benefiting from a greenerworld”.

“Rather than developing new insurance products tailored to thisrelatively small segment of the market, we've opted instead to takea more conservative approach,” said Cindy White, program managerfor FEI's Environmental Contractors and Consultants Department.White's colleague at FEI, David Brereton, added, “There are manynewcomers in these green industries. We think it's best to take arelatively cautious approach so that we can be confident that weare offering coverage of insureds truly qualified in theirfields.”

New Products Still Emerging

In spite of the slowdown in construction, insurers who led thepack in green insurance and a few entrepreneurial MGAs arecontinuing to push into the new frontier. Typically, these newcoverages and products tend to cover gaps or address riskssurrounding renewable energy mandates.

California-based Fireman's Fund launched Green FinancialIncentive Coverage in July 2010, which has been approved in allstates except Florida, according to Stephen Bushnell, seniordirector of emerging industries.

The new coverage addresses tax or utilityrebate recaptures. Like the federal energy efficiency tax rebate,many state and local governments are now offering incentives toresidents who upgrade utilities with green equipment with rebates.Utilities in several states, such as New Jersey, also offerrenewable energy incentives for solar panels or wind turbines addedto properties. If the property owner suffers a covered loss, theowner has to pay all or part of the rebate back to the government.Fireman's endorsement covers this risk, among others.

“With the financial crisis that many governments are having now,this could well become a major issue,” Bushnell said. “We decidedto get a policy form out there for our customers to help themprotect the investment they made in renewable energy.”

Greener Pastures?

Coverages have sprouted to address renewable energy mandatessuch as a recently passed California law that requires utilities toderive 33 percent of power from renewable energy sources by2020—the most aggressive renewable energy measure in the U.S.

Fireman's is among the carriers that introduced risk mitigationlast year in California to address theft of solar panels. Fireman'salso created an insurance program to cover solar power providers'exposures when installing solar panels on private property.Individual property owners can contract with these solar providersto receive reduced utility rates in exchange for hosting the panelson their property. Bushnell was so intrigued by the idea that he'sgot them on his own roof. “Some of these providers have up to10,000 customers and are growing,” he said. “Each one has aproperty risk and liability risk. Our underwriters have beentrained to recognize where it's a good risk and where it'snot.”

Related: Read the article “Main Street producers can reap bigbenefits from growing the green sector”.

Catlin Insurance Group saw opportunity in green's uncertainty.The Bermuda-based company recently launched a professionalliability policy that will pay a lump sum if a building fails toachieve certain LEED certification ratings, with a maximum limit of$500,000. The policy will only be offered when a third partyprovides oversight by a LEED professional for the certificationprocess.

Massachusetts-based Energi, a U.S. program administrator and MGAwhose core business is property-casualty coverages in the energysector, teamed up with Hanover Re to launch two new warrantyproducts last year. The Solar Installers Performance Warrantybackstops the performance warranty from solar panel installers,which are required by certain states, developers and institutionsthat finance these projects to guarantee that their panels willgenerate a certain amount of kilowatt hours.

McCarthy is hopeful that this warranty coverage will play wellin states like California by enabling solar installers to get thesecontingent liabilities off their balance sheets.

In December 2010, Energi introduced anotherunique product called the Energy Savings Warranty (ESW), acontractual liability backstop that transfers an Energy ServicesCompany's (ESCO) performance guaranty risk that their installedenergy savings measures will reduce energy costs. Like the solarperformance warranty, the ESCO product enables broader financing ofthese projects. ESW provides the ability for emerging ESCOs tocompete in a market that is dominated by a limited number ofmultinational companies, McCarthy said. A U.S. GovernmentAccountability Office report released in 2008 identified thiscurrent lack of competition in the ESCO marketplace, indicatingsome form of insurance was needed to allow risk transfer.

Getting Ahead of the Climate Change Curve

As they up the ante for renewable energy, policymakers are alsourging reduction of fossil fuel use and the need for creativeapproaches to reduce carbon footprints.

Zurich recently launched a coverage that enables businesses tomove from more carbon-dense environments to eco-friendly ones byaddressing supply chain factors, said Michael Golden, ZurichFinancial Services' senior vice president of distributionmanagement. This “supply chain insurance” allows customers totransfer their supply chain risks for named supplies andsuppliers.

“For instance, if a manufacturer has a choice of being inlocation `A' where smog is a problem, supply chain insurance allowsthem to move up the coast to a smaller locale or to a country thatis an emerging manufacturing location with the goal of creating asmaller carbon footprint,” Golden said.

For the product to work well and effectively transfer risk,Zurich works with brokers and customers to precisely identify theircritical suppliers and critical routes to offer a broad coverage,he added.

The second new product, Zurich Fleet Intelligence, targetsbusinesses with 500 vehicles and up—from small auto fleets to majorlong-haul trucking—to install in-vehicle sensors and equipment toprecisely monitor driver behavior and routes. This way, they canmanage their business in an environmentally friendly manner andsave fuel. “Fleet owners can use this information to train thesedrivers not to brake hard or accelerate rapidly from red lights,”Golden said.

Key to any new product launch is profitability andsustainability, said Aon's Taylor. “These clients are alreadypaying an extra premium for the cost of building green—from 1percent to 5 percent for the components and paying for third-partyoversight. Whether they are willing to pay more is a question.”

Bushnell says Fireman's continues to invest in R&D for greenproducts in part because the company has seen green-related premiumvolume grow by $150 million through 2009. Customers who haveFireman's green coverages have a 10 percent better loss ratio thanthe rest of Fireman's business, he added. And the company's claimshistory indicates that green materials are also becoming cheaperand more accessible than in previous years.

“Electrical fires, plumbing leaks and HVACissues are in the top five causes of commercial building losses,”Bushnell said. “With green renovations, even a 50-year-old buildingcan perform like a new building from a risk standpoint. That's whywe are excited about green.”

Bridging the Education Gap

Next to the economic slowdown, the next major reason greenproduct sales have not yet fully developed is the need for morecomplete education and awareness in the agent and brokercommunities, carrier representatives said.

“These certainly are not off-the-shelf products a broker oragent can sell,” Golden said. “They are much more a consultativesell that requires good collaboration. The issues and solutions arestill emerging, so we all have to work together to betterunderstand the challenges and opportunities.”

Education is essential to unlock green's potential, but there'sa steep learning curve that agents must climb, McCarthy said.Energi made a strategic decision to work with a limited number ofindependent agents—about a dozen—who have done their homework onhow Energi's warranty products work. “Having our products givesthem an advantage, something unique for their agency, and itreduces my operating costs,” he said. Energi provides video-basedtraining for these agents via a Web portal.

Fireman's Fund holds bi-monthly meetings with a “green agents”network of about a dozen agents across the country to get theirinput on green products. The company also recently launched a“Green Risk Advisor” website available to the public and a “GoGreenToolkit” to arm agents with good arguments when describing howgreen products can help improve customers' bottom lines.

“One of the barriers is that agents, in general, may still thinkof green as only an environmental conservation argument,” Fireman'sBushnell said. “The economic savings argument is morecompelling.”

As Aon's “green expert” and environmental thought leader, Taylorbelieves that although the promise of green growth may have beeninitially oversold, its greatest promise may lie in improvedemployee productivity. If work conditions are good, especially airquality, employers may reap significant benefits from reducedabsenteeism and greater worker output.

“While energy savings in water and electricity is attractive,”Taylor said, “it is far less significant than the cost of employingpeople who are achieving a high level of productivity.”