Every cloud has a silver lining — even the storm clouds of global warming, environmental disasters, and industrial pollution. These natural and manmade dangers can provide new insurance opportunities for businesses willing to look beyond the usual.
Ceres, a national coalition of investors, environmental groups and other public interest organizations, described over 400 new insurance-related opportunities in a landmark report, "From Risk to Opportunity 2007: Insurer Responses to Climate Change." The report detailed how both niche and mainstream insurance companies are developing new product lines and refining older products to address energy efficiency, green building design, carbon emissions trading, wind power, biofuels, and sustainable driving practices.
The Insurance Information Institute (III) recently detailed some of the new industries to insure — wind farms and other alternative fuel facilities foremost among them — and the emerging financial risks, such as companies involved in carbon trading. It is seemingly a wide-open field. Marsh USA, Inc., says that only two to three percent of businesses currently purchase environmental insurance, despite the fact that standard liability contracts don't cover pollution and that all businesses face exposure.
III research also revealed opportunities for companies to design insurance policies that provide incentives to policyholders. One of the most popular, discounts on auto insurance policies for owning a hybrid car or for driving fewer miles, has been shown to reduce overall miles driven by 15 percent or more. This pay-as-you-drive coverage resonated with the public, and insurers with large market share such as Progressive and GMAC jumped on that bandwagon early.
Building Green
Higher-ticket and more complex coverages are increasingly gaining marketplace acceptance. Separate policies or endorsements that allow homeowners and building owners to replace damaged buildings with green alternatives are now offered by many of the major carriers. The policies normally provide for the replacement of damaged components with energy efficient electrical equipment and interior lighting, water conserving plumbing, and nontoxic and low odor paints and carpeting. They also may pay for engineering inspections of heating, ventilation, air conditioning systems, building recertification fees, the replacement of vegetative or plant covered roofs, and debris recycling. Some even cover the income lost and costs incurred when alternative energy generating equipment is damaged.
According to III, green commercial building construction is expected to rise significantly over the next few years. In an effort to capture that market, a growing number of insurers are offering green commercial property insurance policies and endorsements, some of which are directed at specific segments of the business community.
AIG Risk Management has introduced the AIGRMGreen product line, a primary casualty coverage for property owners and managers of green buildings. Two coverages are available, both as endorsements: AIGRMGreen Reputation Coverage and AIGRMGreen Indoor Environment Coverage.
In a media release, AIG stated that its AIGRMGreen Reputation product provides up to $50,000 in coverage, per occurrence, for crisis management consultant costs resulting from management of a reputational crisis when a green building experiences adverse publicity. The coverage provides funds to employ crisis management specialists and other services to assist in restoring a company's reputation.
The AIGRMGreen Indoor Environment Coverage protects against claims of bodily injury caused by any substance or odor produced by or originated from a green building's specialized equipment used to improve air quality or water quality control. Loss resulting from this type of equipment is typically not covered in standard policies, exposing the building owner to a gap in protection.
Fireman's Fund Insurance Co. has been equally aggressive in the environmental arena. The company reportedly was the first property and casualty insurer to offer green insurance coverage for homes, commercial buildings, historic buildings, hotels, restaurants, commercial auto, and manufacturing facilities. In most cases, Fireman's Fund gives a five percent discount to homeowners and building owners whose structures are certified green by the U.S. Green Building Association. In an effort to "walk the walk," the company will begin replacing its fleet of company cars with hybrid vehicles this year.
More Join the Fight
Lexington Insurance Company and Travelers Insurance both offer programs that enable policyholders to repair, rebuild, replace or upgrade to green building elements and appliances in the event of a covered loss.
In a news release, Lexington said that its program, Upgrade to GreenSM Commercial, "allows commercial property policyholders to rebuild the insured building and replace personal property with products that embrace sustainability principles and reduce the overall impact of the building on the environment."
The coverage also covers expenses for recycling during reconstruction and at the time of loss, and allows for testing after the reconstruct to ensure LEED compliance.
Travelers' insureds are offered green building coverage enhancements that cover the additional cost and restoration time for green building alternatives, and expenses related to green building re-engineering and recertification. The program is designed to help businesses keep pace with sustainable building practices and promote the use of environmentally friendly building materials following a loss. The carrier also offers coverage for green building recertification and rebuilding vegetative roofs, events not previously covered in its commercial building policies.
ACE USA introduced its green building restoration coverage in 2008. The company said its program covers "improvements to heating and cooling systems as well as carpets, paints and other interior finishes when customers rebuild according to green building standards." The policy is offered as a stand-alone to banks, manufacturing facilities, universities and colleges, retail stores and other select industries.
In December, the ACE Group of Companies announced the formation of its Leadership in Energy and Environmental Design Consulting Practice for corporate clients worldwide.
Insurance industry experts expect this "field of green" to continue to grow as businesses, governments, and private consumers push for more options.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.