Insurers Offer Green Incentives

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Climate Change Seen As Costly To Industry

Citing fears of rising costs from climate change, insurance companies have begun changing the terms of their policies to encourage customers to act more green.

One change came last month, as California’s Insurance Department approved a plan to let insurers adjust their fees to encourage customers to drive less, which could result in a decline in greenhouse gases.

Another recent initiative includes reimbursing property owners when they install energy-saving devices or use environmentally friendly materials as they rebuild damaged homes or commercial buildings.

Insurers say they want to do as much as they can to address the risk of climate change because they fear that environmental disasters, which are projected to keep rising as the climate changes, could expose them to larger losses.

This week, the Willis Research Network — an arm of one of the world’s largest insurers, the Willis Group — partnered with San Diego’s Scripps Institution of Oceanography to measure the risks posed from climate change.

Peter Moraga, a spokesman for the Insurance Information Institute of California, said the insurers’ green policies are "a direct result of looking at climate change as an issue. Reducing our (climate-related) risk is a big part of this."

Critics say that some of the moves are little more than marketing ploys, designed to capitalize on growing public demand for greener goods and services.

A poll of insurers this summer by Celent — a Boston research and consulting firm — found that 56 percent of respondents said they intended to use their green policies in their marketing.

"Insurance companies realize they can get some mileage if they paint themselves as a bit greener," said Doug Heller, executive director of Consumer Watchdog, a Santa Monica group that has long been critical of the industry.

Government regulators are also prodding the insurers.

Starting in May, the nation’s biggest insurers will be required to submit annual filings telling regulators and investors how much risk they face because of climate change and what steps they plan to take to mitigate the risks, under a rule adopted by the National Association of Insurance Commissioners.

Among other things, the rule requires each insurer to "summarize steps (it) has taken to encourage policyholders to reduce the losses caused by climate change-influenced events."

One of the biggest initiatives is a nationwide campaign to introduce "pay-as-you-drive" auto coverage, tying auto insurance rates to mileage data collected from the odometer or other devices.

Last month, Insurance Commissioner Steve Poizner approved one of the nation’s first pay-as-you-drive programs, citing a 2008 report by the Environmental Defense Fund that said if 30 percent of Californians used such coverage over thenext 10 years, the state could avoid 55 million tons of CO emissions, the equivalent of taking 10 million cars off the road.

If is approved by the Office of Administrative Law, it could go into effect as early as this month.

Although insurers have long used mileage as a factor in determining rates, the rules have often involved broad categories. For instance, State Farm, one of California’s biggest auto insurers, provides a lower rate for people who drive below 7,500 miles per year and a higher rate if they exceed that level.

"How does a rule like that incentivize anybody who drives, say, 12,000 miles per year to reduce their driving," Heller said. "They’ll never get down to 7,500, so why try?"

Although low-mileage drivers stand to get lower insurance rates thanks to pay-as-you-drive, some of the biggest benefits may go to the insurers, who will be able to use more comprehensive mileage data when setting rates.

In fact, insurers see a number of benefits from climate change. A report last month by the Insurance Information Institute of New York — an affiliate of the California institute — found that "opportunities exist on several fronts" from climate change, including the creation of whole new industries, such as alternative fuel facilities, that will need new forms of insurance.

Consumer Watchdog
Consumer Watchdog
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