Insurer Products, Services Help Avert Climate Change Catastrophe Losses

Mark Way, director of sustainable development for the Americas–part of Swiss Re's Sustainability and Emerging Risk Management unit–said the company traces its first mention of the subject back to 1989 in company publications, taking a more active stance through the mid-90s.

The effort is a core function today, as Swiss Re has expanded its role considerably.

For example, the carrier was actively involved in the United Nation's Intergovernmental Panel on Climate Change report, which assessed scientific research on the controversial issue. The report determined that man-made forces are primarily responsible for global warming, which is considered the primary cause for recent climate changes.

The company has developed what Mr. Way describes as a four-pillar strategy for dealing with the causes and effects of climate change, while also facilitating solutions.

o Understand the risk, as well as what needs to done about it.

o Promote dialogue and understanding about the subject, both within the insurance industry and among the general public, with the aim of creating a political mandate to develop and implement solutions.

o Develop insurance products that deal with the more severe realities of climate change.

o Lead by example, by working to reduce Swiss Re's own "carbon footprint" as well as that of its employees. The carrier made a commitment in 2003 to become carbon-neutral by 2013.

On the product side, Swiss Re has developed insurance-linked securitizations, taking environmental risk to the capital markets through the development of catastrophe bonds to increase capacity. It also developed weather insurance programs to deal with the diverse effect of climate patterns on clients and their businesses.

Swiss Re supports carbon reductions through its introduction of insurance to cover projects that aim to reduce the production of carbon in the atmosphere. The company also provides coverage for carbon credit programs, as well as conventional coverage for wind or solar production operations.

One Swiss Re program is "CO-you2," where the company provides subsidies up to $5,000 to employees who make investments in products that generate measurable carbon dioxide reductions.

"Our commitment to climate change is open-ended," said Mr. Way. "We remain committed to it as long as necessary."

"Climate change is not a simple challenge," according to Lindene Patton, senior vice president and counsel for commercial markets at Zurich North America.

The company began a coordinated effort to address global warming issues in 2005, she explained. Up until then, the development of climate change initiatives was dealt with regionally.

Among some of the insurer's first moves was to offer discounts to owners of hybrid vehicles. Today the program is offered in 37 U.S. states by its Farmers Insurance unit, as well as to drivers in several European nations.

The company recently established a climate-change office to deal with client product needs, as well as launching a Climate Change Advisory Council to work on strategic and operational issues with both internal and external members.

Zurich is also supporting education and research institutions that are examining the climate change issue from an economic, finance and policy perspective.

Ms. Patton said the carrier's Switzerland-based parent is instituting an aggressive program to provide insurance coverage for alternative energy sources, ranging from solar, wind and bio-mass (ethanol-type products) to hydrogen and other fuels.

She said the company is seeking to take a leadership role on this issue that will provide "terrific results" for both the carrier and the world community.

Zurich is looking for ways to reduce its own carbon footprint by examining its business practices. This has prompted less airline travel and greater utilization of video conferencing for meetings, for example.

In addition, offices have installed sensor lighting and heating systems aimed at reducing energy consumption. Offices also buy electricity from green sources, where feasible, to reduce carbon consumption.

The idea is to institute best environmental practices companywide. "We want to be a leader in market-based climate solutions," said Ms. Patton. "We're excited about it, and we feel we can help our customers adapt to climate change by focusing our core skill base."

Social responsibility and seeking opportunity for both its insurance and investment arms distinguishes American International Group in its attitude toward climate change.

After a visit from the group Socially Responsible Investors four years ago to review its environmental practices, AIG determined it needed to coordinate its climate change activities, explained Joe Boren, president of AIG Environmental.

As part of that focus, the company hired Alice LeBlanc, naming her director of the office of Environment and Climate Change.

Mr. Boren and Ralph Mucerino, president of AIG Global Marine and Energy, explained that the company has a long history in promoting environmental activities going back decades–for example, facilitating the economic revitalization of risky, contaminated property (known as brownfields) into viable properties with the backing of insurance products provided by the carrier.

Today, the company is immersed in the broader climate change issue, according to Mr. Mucerino, providing not only insurance products but financial backing as well for environmental forums and causes, along with investment capital for the development of environmental projects such as wind power.

"When the opportunity and need arise, we get involved pretty early," said Mr. Mucerino.

"We are involved in projects that make good business sense but are also the right thing to do," added Mr. Boren. "There are serious environmental issues, and we need to do our part."

From a coverage standpoint, much of AIG's environmental products are written through its surplus lines insurer, Lexington Insurance. Mr. Boren explained that environmental coverage is very complicated, and customized policies often need to be manuscripted around the particular problems faced by a given client.

Among some of the coverages the company provides is "LexElite," a homeowners product that, in case of a loss, allows the policyholder to upgrade to environmentally "green standards" that save and reduce energy consumption.

The company also:

o Engages in a carbon trading program.

o Offers a property-casualty and marine insurance program for a wide range of non-carbon-producing, energy-producing facilities.

o Provides commercial coverage discounts for LEED-certified buildings. (LEED stands for Leadership in Energy and Environmental Design.)

Ms. LeBlanc explained that AIG's work at reducing its own carbon footprint includes the purchase of carbon credits to offset what it calculated is 620,000 metric tons of carbon it produced in a year.

The offset includes an investment in agricultural projects in China that not only helps reduce carbon production through photosynthesis but also aids the local economy and reduces erosion in this one arid area of China.

"When you look at this from an AIG perspective, it's really an integrated strategy that touches upon all elements of what we do, and how we behave, and what we bring to our customers–which is quite different than the way the insurance industry normally behaves," said Mr. Mucerino.

"We normally behave very opportunistically and tactically by going out and trying to sell insurance," he added. "This goes far beyond that."

Steve Bushnell, product director for Fireman's Fund, noted that the Novato, Calif.-based company became involved in the climate change issue because its officers felt concerned and wanted to take action. At the same time, the carrier wanted to develop products that deal with the emerging risk.

Within its own offices, Fireman's Fund has worked to cut its power consumption by buying energy-saving products, retrofitting offices with more efficient lighting and other measures. Its "green" buildings use 30 percent less energy than conventional offices. The aim is to make all its offices green and to reduce energy consumption 30-to-50 percent.

On the product side, Mr. Bushnell explained that energy-efficient buildings employ constructions that are not typically found in conventional structures. This includes covering roofs with dirt for plantings, solar panels, or underground piping for geo-thermal heating.

Fireman's Fund, he added, takes its traditional insurance policy and expands it to cover these new exposures.

The benefit not only helps with the environment but also presents a better risk, he said, because green buildings are generally built better and more carefully maintained.

The current programs only apply to commercial real estate but are being expanded to other green construction–such as hotels–and the company is working on eventually extending it to homeowners.

"We have been really aggressive in talking about green products," said Mr. Bushnell, noting he spoke to about 40 meetings on the benefits of building green.

Allianz–the Munich, Germany-based parent company of Fireman's Fund–is a supporter of the World Wide Fund for Nature, and is working to reduce its carbon footprint as a corporation 20 percent by 2012.

Chubb is developing a three-prong approach to deal with green energy insurance issues, noted Peter Thompson, vice president of the Warren, N.J.-based carrier, as well as worldwide energy resources specialty manager for Chubb Commercial Insurance.

Last August, it set up a green energy team to develop products and services geared toward the green energy market. The group, he said, will perform due diligence to identify opportunities and pitfalls related to green energy technology, with the goal of providing services to those working with these emerging technologies.

He said the company is looking to provide a complete suite of options and services to clients as it makes coverage available. As customers look to go green, he said, Chubb wants to be in the position to respond to those needs.

In January, Chubb joined the American Council on Renewable Energy and the U.S. Green Building Council to better serve its commercial clients, as well as support the development of the alternative energy market.