Storms like Sandy are a huge liability for homeowners, businesses, and insurers. And one forecast say future weather-related losses will increase by up to 30% in Northeast coastal regions. Now some are asking if the insurance market could be a new lever to mitigate weather-related risks. WNPR’s Sujata Srinivasan reports on the opportunities for green insurance products.
As recovery continues from Superstorm Sandy, the spotlight is on weather and climate change. Earlier in June, a U.S. Geological Survey report found in the last two decades, sea-level rise from Cape Hatteras to north of Boston was three times faster than globally. That means in the future, even low intensity storms could lead to severe damages from flooding. For insurers, this poses higher risks both on the underwriting as well as the investment side. For policyholders, greater risks imply higher premiums and deductibles. But insurers have been quietly offering “green policies” – coverage that factors in risks associated with climate change, such as discounts for insurance policies on hybrid cars and for building eco-friendly homes and offices after a loss. Insurance agent Linda Baronowskus at Smith Brothers.
“On the personal insurance side, the coverage would provide additional dollars to rebuild to green. On the commercial side, it also includes added expense for the building to be commissioned or LEED certified.”
Cynthia McHale is Insurance Program Director at Ceres in Boston, which works with companies to build environmental sustainability. She says research has shown that environmentally conscious customers are more risk averse, which is great news for insurers.
“Sandy, which caused enormous destruction as well as, of course, sadly significant loss of life, provides opportunities for leading insurers to think about some of the products and services that are now even more so needed in the marketplace to managing risks related to weather perils.”
McHale says property and casualty insurers could add up to 20% to top-line premium growth, as well as grow net income by selling green insurance products. Some insurers are clearly ahead of the curve. Allianz, Acadia, AIG, Travelers and the Hartford offer policy upgrades to build green properties after a loss. Insurers also have preferential rates for homeowners who construct houses resilient to higher wind under storm conditions. But here’s a strange thing; green policies are hardly advertised.
“These are fantastic products and there will be more demand for them. In a business that’s very competitive, you would want to get that word out. I think the reality is that the phrase climate change became so politicized that insurers, like many others, became quite cautious about speaking out about it even when at the same time, they’re developing products that address the risks that climate change introduces.”
Though research is inconclusive on the link between climate change and increase in storms like Sandy, McHale says the risk associated with climate change is becoming central to managing enterprise-wide risk for insurers. But as of now, the demand for green policies is low.
“Today not more than 5% of commercial businesses in the state of Connecticut have green insurance policies. And I really think following Sandy, we’re going to see a significant increase not just in the green insurance policies, but in the rebuild in a more resilient fashion. If we get to 10% in the next year, I think that’s very plausible and that would be fantastic. And then of course we need to grow from there. Carriers need growth opportunities and I think this one’s sitting right there for them.”
Price incentives could promote green buildings and cars. But some experts believe it will take much more to make a real impact on the environment. Christoph Geiss, associate professor of environmental science at Trinity College.
“What we can do is reducing our impact on the environment. And that starts with using less energy, using less raw materials, building smaller houses. A 5,000 square foot, 50,000 square foot mansion on the coast built with green materials may well qualify for lower insurance premium but it is not environmentally friendly.”
Mark Twain said we all grumble about the weather, but nothing is done about it. That that might well begin to change as Connecticut rebuilds from Sandy.
For WNPR, I’m Sujata Srinivasan.