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As we’ve
discussed before, risk management takes precautionary measures. Note Fireman’s
Fund program to be activated soon.
kwc New combatant against
global warming: insurance industry The world's second-largest industry, worried about losses
related to climate change, offers incentives to 'go green.' By
Ron Scherer, The Christian Science Monitor, October 13, 2006 NEW
YORK - Insurance companies, who like to stay out of the limelight, are becoming
leading business protagonists in the assault on global warming. Ø
Next
week, Travelers, the giant insurance firm, will offer
owners of hybrid cars in California a 10% discount. It already offers the discount in 41 other states and
has cornered a large share of the market. Ø
This
fall, Fireman's
Fund
will cut premiums for "green" buildings that save energy and emit
fewer greenhouse gases. When
it pays off claims, it will direct
customers to environmentally friendly products to replace roofs, windows, and
water heaters. Ø
In
January, Marsh, the largest insurance broker in the
US, will offer a program with Yale University to teach corporate board members about their fiduciary
responsibility to manage exposure to climate change. The insurance industry's clout is sizable. It's the
second-largest industry in the world in terms of assets, and has a direct link
to most homeowners and businesses. It insures coal-fired power plants as well
as wind farms, so it can influence the power industry's cost structure. With
its financial muscle, the industry could help advance the use of new financial
instruments designed to allow companies to trade greenhouse-gas emissions in
the same way that commodities are bought and sold. "The insurance industry has the ability to change
behavior, policies and communicate with clients," says Nancy Skinner, US
director of the Climate Group, which lobbies for business and government action
to address global warming. Some consumers are already noticing a negative effect of
this shift. In the past year, some 600,000 homeowners living in a zone that an
insurer considers a high storm risk in an era of climate change have seen their
policies cancelled or not renewed. This includes coastal areas stretching from
Texas to New York. Currently,
coastal properties are valued at $7.2 trillion. Reassessing risk One reason for this massive change in coverage is an
ongoing shift in the way insurance companies view risk. Insurers are starting
to change their risk-assessment models to reflect future climate-change
scenarios instead of past weather patterns. "Climate change represents an ever- increasing risk, a
risk far too great to ignore," says Clement Booth, a member of the Board
of Management at Allianz
AG, one of the
world's largest insurance firms. This week, Allianz, in cooperation with the World Wildlife Fund, issued a report on steps the
insurance industry could take to reduce the physical impact of global warming
or to help society adapt. "The
industry is in a unique position to incentivize," says Miranda Anderson,
an author of the report and a vice president at David Gardiner &
Associates. "This is the very beginning of thinking through this
issue." In fact, the industry is not driven just by an attempt to
help the environment: It also wants to make money. In Travelers' case, the
impetus to give a policy discount on hybrid cars came when Greg Toczydlowski, a
senior vice president of product management, was gassing up his wife's Ford
Excursion. "A hybrid zipped
in and out while I was still pumping, and it occurred to me it takes so little
gasoline and runs so much longer on a tank," says Mr. Toczydlowski.
"I came back and did research on how many hybrids are out there and what's
the profile of the customer. We discovered it was a preferred customer - middle-aged,
very responsible, and stable financially." Now hybrid owners, besides saving on their fuel bills, can
save money on their auto insurance - about $100 a year, according to Travelers. Attentive state regulators The attention on climate change is likely to receive a
boost from state insurance regulators, who had planned to discuss its risks in
September 2005 in New Orleans, at their annual meeting. Hurricane Katrina intervened, however, and the meeting
was moved to Chicago. "As a
result, regulators spent an enormous amount of time on climate change and what
changes to promulgate to make sure the companies are financially sound,"
says Mindy Lubber, president of Ceres,
a coalition of investors, environmental groups, and public-interest organizations
in North America. Ceres has made two reports on what the insurance industry
can do to profitably manage climate change. In a report issued in August, Ceres
details some steps currently under way, such as Swiss Re's investment in new solar technology, Munich Re's insurance renewable energy projects,
and Lloyds of
London's
insurance on predicted energy savings. In the US, one of the more unique and potentially far-reaching efforts will be
rolled out this fall by Fireman's Fund.
After a building is
damaged,
Fireman's will specify that it
must be repaired with "greener" materials, including consumer electronics that
must have Energy Star ratings from the Environmental Protection Agency. If a building is a total loss, it will be rebuilt as a "green" building. The insurer also plans to pay for an
engineer to make sure ventilation systems and boilers are installed properly,
which could also save energy. "All the evidence suggests [that] if you decrease
energy usage in a building, the owner's net operating income increases and you
will improve the asset value," says Steven Bushnell, product director of
Fireman's, owned by Allianz. Insurance companies, adept at managing risk, are also
trying to educate their customers. Marsh and Yale will train 200 board directors
to understand risks of climate change. Again, part of the motivation is money:
Insurance companies provide liability insurance for board members. http://www.csmonitor.com/2006/1013/p01s01-usec.html |
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