From the August 2010 issue of Investment Advisor • Subscribe!

Insurance Update: Insurance Coverage Goes Green

Fireman's Fund now offers discounts for Energy Star buildings

The company that started providing businesses, and later private individuals, with green insurance has added more arrows to its quiver of green products.

Fireman's Fund has announced, first, a 5% discount for Energy Star buildings; buildings holding Energy Star classifications generally use 35% less energy and produce 35% lower carbon dioxide emissions than common buildings.

Second is Green Financial Initiative Coverage, which "provides protection for incentives impacting taxes, utilities, loans, and more related to green installations or upgrades. In the event of a loss, Fireman's Fund will cover any losses for two calendar years."

When we first wrote about Fireman's Fund offering green insurance products in the U.S. (see "It's Now Easier Being Green," IA, September 2008), there were only about 500 buildings certified as green under the Green Building Initiative (see www.thegbi.org for more information). Now there are more than 10,000 Energy Star buildings (different system, similar principles), with more on the way.

Fireman's Fund began its green insurance initiative with Green-Gard commercial building coverage in 2006. This allowed business owners to replace standard systems, such as power generation, water, and roofing, with green products in the event of a loss. Customers who already had green systems in place were also covered for replacement, and if the building was a total loss, Green-Gard allowed it to be rebuilt green-certified, which in the long run saves considerable resources. Currently there are approximately 1,500 policies in force with Green-Gard endorsements, according to the company.

Auto, Home, Commercial Buildings

The company's green commercial auto coverage, launched in 2008, was augmented by private coverage in 2009. Policyholders opting for the hybrid auto upgrade are covered for the first three years of the vehicle's life for replacement by a hybrid model or its equivalent; those purchasing the new vehicle replacement coverage will be able to buy a new hybrid vehicle to replace the one they already drive, in case of total loss, for the first three model years, with a five-year option available. This is instead of the actual cash value--the cost of the vehicle minus depreciation--offered by most policies. These policies are not available in all states.

Green homeowner's insurance followed, also in 2008; currently 31,000 policies are in effect in 36 states, with $87 million in premiums. Homeowners can insure existing green homes or, upon loss, rebuild with green features. As with the commercial insurance, already-green homes qualify for a 5% discount.

Fireman's Fund had previously offered a discount to buildings already green-certified under its Green-Gard coverage. Stephen Bushnell, senior director of emerging industries at Fireman's Fund, says that the insurer has "discounted LEED-certified buildings since 2006. Initially," he adds, "we believed that LEED-certified buildings would be less risky than traditional buildings due to building commissioning (mandatory under LEED NC [New Construction] and encouraged under LEED EB [Existing Buildings])." (For more information on LEED commissioning and ratings, go to usgbc.org).

Commissioning, he explains, addresses the building systems that "contribute to most of our losses: electric and plumbing. We concluded that commissioning not only makes a building greener, it makes it safer. Our loss ratio for our green coverages has confirmed our initial assumptions. It led to a conclusion that energy-efficient buildings are better risks than energy 'hogs.' Hence our decision to recognize Energy Star-rated buildings with a rate discount."

Fireman's Fund risk services consultants can also help property owners find out exactly where they stand with regard to water and energy consumption through the EPA's Portfolio Manager tool. Bushnell says that EPA developed its Portfolio Manager system "several years ago. We have trained our risk services consultants to assist our insureds as they maneuver through the process."

Planners with business owner clients who want to take steps toward energy efficiency and diminished environmental impact might consider sending them to the EPA's Portfolio Manager tool. There's an overview and much more information available on the Energy Star Web site at energystar.gov. Eligibility requirements, types of buildings covered, and explanations of the tools and data used are available, along with downloadable PDF documents on everything from tracking progress to Energy Star certification.

Fireman's Fund's green initiatives aren't over. Says Bushnell, "We continue to develop a deeper understanding of the insurance and risk management needs of our green and sustainable [clients] (including those who would like to move in that direction) and will develop products and services that meet these needs."


Marlene Y. Satter, a freelance business writer who can be reached at harpwriter@verizon.net.

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