From the September 2008 issue of Investment Advisor • Subscribe!

September 1, 2008

It's Now Easier Being Green

The first company to offer green commercial insurance is now gathering homeowners under its branches, too

You have clients who are environmentally savvy. And now they want insurance that will help them stay green, or even help them add environmentally friendly features to their homes if catastrophe strikes.

Thanks to Fireman's Fund, that's now possible--and for not much more than the price of a standard policy. According to Mitchell Ziemer, property product director for personal insurance, the new policy grew out of feedback from both agents and customers. Fireman's Fund had already introduced its green commercial insurance two years ago, and the company was hearing, particularly from the more affluent, that they wanted the same options for their homeowner's insurance.

Ziemer says that, among focus group attendees, the level of interest in "green living" rose with their level of affluence. The green option, he adds, was something that came out of those focus groups "as something that Fireman's Fund and the industry in general should get a move on." The commercial side had just introduced green insurance for commercial buildings, he explains, and it was successful; he describes the homeowner's coverage as "a mirror image," and adds that Fireman's Fund felt "the residential side [was] about to blossom." Fireman's Fund's Green Consumer Awareness Study, conducted in 2006, demonstrated that affluent customers, while they have a variety of motivations that range from health concerns to a desire to give back, have already taken steps of one kind or another to "green" their lifestyle. And they care more about social responsibility than they do about tax rebates or service costs.

Top concerns for these folks, according to the study, included energy efficiency and cost, health, and lowering their carbon footprints. And even then, it seems, they were on the cutting edge of the trend; a Forbes study done in October of 2007 ranked the country's states based on how green they were, and one of the prime factors in determining where a state placed on the list was the number of buildings certified green.

Even before the coverage actually existed for residential properties, the company gave it a trial run in the wake of the San Diego wildfires of 2007. Says Ziemer, "We lost several [insured] homes in those fires, and we offered this as an option during the claims settlement process. We had 20-30% take [it] up right there. Some of those customers are now rebuilding with green features."

Green Rebuilding Costs More

So how does it work, and what does it cover? First of all, there's no underwriting. Clients can purchase the coverage for an additional charge over their basic policy. Green rebuilding costs more, as you might expect, but Ziemer says the actual payout increase over a conventional residential policy runs about 3%. The new green homeowner's coverage provides coverage, he explains, of up to 10% additional value for the dwelling.

During removal of the damaged structure, the policy pays for "environmentally sensitive demolition and debris removal," and in rebuilding, it will pay for sustainably produced materials, such as bamboo flooring, and low-VOC (volatile organic compound) paints and other materials. The policy covers replacement of damaged electronic appliances with Energy Star-certified equivalents, and such features as plumbing, heating and cooling, building materials, interior lighting, and even roofing with energy-efficient upgrades. It also provides funds for a professional accredited with Leadership in Energy and Environmental Design (LEED) to help with design and construction for rebuilding, as well as "an added amount" to pay for certification costs once the job is done. (For more on LEED building see The Green Advisor.)

Good enough? There's more: clients with homes already certified green get a 5% premium credit. Says Don Soss, chief underwriting officer for personal insurance at Fireman's Fund, "It's not just because we think green is great; we believe it will perform better, and is built better."

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