Warmed-Over Insurance

With the great debate swirling over the legitimacy of global warming theories, the value proposition for green insurance becomes part of the debate.

By Christopher E. Mandel

Key to understanding that value proposition are the opinions on the arguments for global warming and even more significantly, opinions on where the green movement is taking us and at what speed and cost. At this juncture, both questions are hard to answer, the benefits remain dubious.

The greening of commercial insurance seems to have first popped up in late 2006 with Fireman's Fund taking the lead as a member of the Green Building Council. AIG introduced a green product for residential property in 2008 and others including FM Global began offering green-related enhancements to their commercial property insurance forms around the same time. These efforts have been largely focused on endorsements to property insurance policies that reimburse the cost of bringing in a LEED appraiser to oversee reconstruction to its original LEED certification level, making sure that the building systems operate at peak performance and are in alignment with one another.

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Other companies such as AIG/Lexington Insurance Company, Travelers, Zurich, and Chubb have jumped on board, indicating that green insurance is here to stay. There are even brokers devoted to the provision of insurance just for green friendly businesses. For example, Green Business Insurance Inc. provides insurance policies and risk management services to organizations thatprovide a product, technology or service that enables businesses or consumers to utilize resources more effectively. That's its specialty; it's all Green Business Insurance does.

A Google search reveals numerous hits on links that purport to specialize in providing green insurance quotes. More often than not, they aren't specializing, just using the green moniker as an attraction device to those whose leanings are in the green direction. A bit of bait and switch I'd say.

One interesting aspect of green insurance is the option for owners of nongreen commercial buildings and homes. For an additional premium, the owner of a nongreen home can make sure that home is rebuilt to LEED Silver certification standards in the event of a total loss.

For those who are interested in green homes but don't want to move from their current homes, this insurance would in the event of a loss provide the home rebuilt to a green level of energy efficiency, a level of improvement expense not otherwise considered feasible for most homeowners, absent a loss and insurance protection of this kind.

While most of us like the idea of a more energy efficient home for its benefits to both the environment and our wallets, the payback period for green conversion is either too long or simply insufficient to justify the investment.

According to the Insurance Information Institute in December 2009, companies offered 39 products and services specifically aimed at new green buildings or green upgrades for existing buildings. It's unclear, however, whether it's worthwhile to pay extra for a policy add-on that lets you rebuild after a loss with more eco-friendly materials and appliances.

A skepticism is creeping into this market in which some characterize green insurance as just a marketing gimmick because going green is in.

CHRIS MANDEL is the enterprise risk manager for a leading financial institution and a former president of the Risk and Insurance Management Society.

August 1, 2010

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