It’s getting easier to be green as Connecticut insurers, including The Hartford and Travelers, are stepping up to serve a growing demand for eco-friendly insurance products, such as rewarding customers with premium discounts for purchasing hybrid cars and boats or rebuilding properties with sustainable materials.
The products, known as “green” insurance, allow insurers to get in on a growing and increasingly profitable consumer base and to hedge against climate change, which poses a serious threat to the industry.
According to a 2008 report by McGraw-Hill, green building construction, which is not fully covered under traditional property loss insurance, is expected to grow to a $40 billion to $50 billion industry by 2010, creating a huge potential market for insurers.
Two-thirds of the 1,500 U.S. insurance executives recently surveyed by Simon-Kucher & Partners said they expect green insurance to be a “durable, considerable and profitable market segment” going forward because more businesses are expected to adopt energy efficient practices.
“To respond to the needs of our customers, we’ve invested in insurance products that will encourage responsible green behavior,” said Lace Garbatini, a national director at Travelers. “But it also provides an opportunity for growth in an increasingly popular market segment.”
Garbatini explained that Travelers recognized the broader issue of climate change in 2005 shortly after Hurricane Katrina devastated New Orleans. Since then, Travelers established a climate change committee to identify the emerging risks and opportunities that global warming presents. One of the committee’s working groups has focused on the development of green insurance products.
It offers a policy that compensates policy holders for the higher costs associated with rebuilding homes and businesses with sustainable materials such as recycled products. Those upgrades typically cost about 3 to 5 percent more than traditional building materials, according to U.S. Green Building Council.
Travelers has also taken the lead in extending up to a 10 percent discount for coverage of hybrid cars and electric boats.
Additionally, the company offers commercial boiler and machinery policies that cover the replacement of damaged equipment with upgraded equipment that protects the environment and operates more efficiently.
Also filling a commercial insurance void, The Hartford provides coverage for wind, solar and geothermal plants. One product, for example, insures the costs to repair wind turbines, something most insurers don’t offer.
The Hartford, which has a dedicated industry group that focuses on renewable energy, is also generating products that insure geothermal heating and cooling systems, part of an industry that is expected to grow under the Obama administration, said Dan Brown, senior vice president of industry markets at The Hartford.
“It’s an industry where specialization really matters,” Brown said. “Other companies are starting to move into this base but don’t understand exposures well enough and only provide general coverage. The industry needs customized solutions.”
Other insurers have launched new products within the green market as well. The Fireman’s Fund, a California-based property and casualty insurer, cuts premiums for green buildings that save energy and emit fewer greenhouse gases.
Another product is a pay-as-you-drive insurance policy, which encourages drivers to drive less by basing insurance costs on the number of miles driven. Studies have shown such products can reduce overall miles driven by 10 to 15 percent or more.
Executives at Travelers and The Hartford say they are looking beyond green insurance profits to climate change and its effects on the insurance industry.
Hurricanes and other severe weather have cost insurers $243 billion in the last decade and, and scientists expect global warming to trigger more frequent and violent storms, according to the Insurance Information Institute.
“Climate change exploits the unique vulnerabilities of the industry and threatens the whole concept of insurability,” said Andrew Logan, an insurance director at Ceres, a Boston-based nonprofit coalition of institutional investors and environmental organizations. “Insurance companies make profits by insuring risks that are predictable, but climate change makes risk unpredictable and much more expensive. That’s an insurance underwriter’s worst nightmare.”
Garbatini and Brown said these products encourage customers to cut their carbon footprint and also offer coverage businesses need to adopt sustainable practices.
