Weather patterns have become increasingly erratic over the last several years. Heat waves, droughts, mudslides, and increased hurricane activity have become the norm. In 2004, four major hurricanes pummeled Florida; the Gulf Coasts of Louisiana, Mississippi and Alabama are still recovering from 2005’s Hurricane Katrina and its ensuing floods. Between these disasters and increasing attention from politicians and the media, the problem of global climate change has become a major issue. As a result, the insurance industry has begun to devise new products and strategies for dealing with this problem.
Some insurers are beginning to offer specialized “alternative energy insurance” policies. For example, one company is writing policies to cover alternative energy system performance. This policy insures against the risk that a deficiency in the design of alternative energy technology will result in the under-performance of a facility. The company designed it to help owner-operators of facilities meet the needs of lenders concerned about their investments. Another company has broadened its coverage for commercial buildings to include alternative energy systems. It also will insure against loss of income when alternative energy systems suffer damage and extra expenses when the building owner must buy power from the grid while the system undergoes repair.
At least one insurer offers special coverage to encourage commercial building owners to replace destroyed buildings with new ones using green technology. It gives the property owner several green technology options, including:
- Non-toxic, low-odor paints and carpeting
- Energy-efficient electrical systems
- Interior lighting systems that meet independent energy efficiency standards
- Water-efficient plumbing systems
- Enhanced roofing and insulation materials to reduce heat loss.
Anticipating less severe and less frequent losses, the same company offers rate credits to green building owners. It has found that most losses in traditional buildings are from electrical fires, heating and air conditioning system fires, and plumbing leaks. The company expects green technology to make these events less likely.
Another insurer has introduced for commercial building owners a new policy that encourages green building. It features coverage for:
- The increased cost of green building alternatives
- The expense of re-engineering and re-certifying green buildings
- Vegetative roofs, and
- Additional time to restore operations so that building repairs can include green alternatives.
Insurers are also educating their clients about the implications of climate change. Recognizing that courts could hold businesses liable for future environmental damage, insurers have worked with corporate boards and officers to encourage planet-friendly business practices. Their hope is that actions taken now will reduce the number and size of future liability insurance claims.
While only a small number of insurers offer specialized policies for green construction now, the success of these products will encourage other companies to follow suit. Also, as green building technologies become widespread, the desire to attract and retain business will force insurers to compete with policies of their own. Insurance agents can identify companies that offer these coverages and make coverage recommendations to property owners. As businesses and households everywhere take steps to reduce their carbon footprints, make certain that your insurance coverage is keeping up with those steps.