California Lawmaker Wants More Green Insurance Products

Bill Would Require Green Products, Offer Tax Credits Even As Industry Steps Up Its Own Development

A bill recently introduced in California could encourage more ecologically friendly insurance policy products, putting the state again at the fore of pushing, and leading, for greener public policies.

The bill, which has been titled the California Green Insurance Act of 2010, could affect a broad range of insurance products, from automobile coverage, to property/casualty policies, to workers’ compensation plans.

Insurance would seem a way to bridge over a wide range of different and varied endeavors that have a significant ecological impact, in one fell swoop. But, the legislation’s sponsor, Assemblyman Dave Jones (D-Sacramento), said only that the inspiration for the legislation came to him because he thinks a lot about insurance as chair of the Assembly’s health care committee, and because he wants to make a contribution to the environment.

The bill was introduced eight days before the California Legislature adjourned for the year. Jones said that was not done so the legislation would be on the agenda, and interested parties- including insurance companies-could begin to discuss and hone the measure.

Jones’ proposal would, among other things:

• Require the state insurance commissioner to hold hearings contrasting the risk, costs, and claims of low-emission vehicles compared with non-low-emission vehicles.
• Require property insurance companies to offer green replacement coverage and to offer coverage for solar and wind distributed generation as part of a homeowner’s insurance policy.
• Require the insurance commissioner to hold hearings on the risk, costs, and claims associated with green buildings.
• Require the insurance commissioner to conduct hearings regarding the health impacts on workers in green buildings, and use the information in establishing the Workers’ Compensation Claims Cost Benchmark.
• Offer state tax credits to insurance companies that invest in financial institutions that provide products designed to protect the environment and support renewable energy.

Insurance Commissioner Steve Poizner has called pay-as-you-drive automobile insurance, an option being currently considered in the state, a “green” insurance because it would encourage less driving.

Jones said he has had no input from anyone in the insurance industry yet.

The insurance industry itself is advancing the green insurance products movement not only in California but worldwide, without legislation like that proposed by Jones, for commercial as well as personal lines customers.

Companies including AIG, Zurich, CNA, Travelers, Liberty Mutual and Chubb – to name just some – already have green insurance coverages on the market.

California-based Fireman’s Fund Insurance Co. has been a pioneer. It released the industry’s first green commercial building insurance product endorsement in October 2006 – but the insurer is no longer alone as a number of others have since developed green products in both personal lines and commercial lines.

Chubb Insurance introduced its Masterpiece GreenWise Upgrade homeowners coverage option in February 2009. This will pay the difference between rebuilding a house as it was and rebuilding green.

CNA Insurance this spring introduced its EcoCare Property Upgrade Endorsement, which allows commercial property policyholders to repair or replace damaged property using environmentally responsible and resource efficient materials and processes. While the EcoCare product is the first green product to come from CNA says more green coverages are in the works.

Liberty Mutual introduced its commercial property coverage for green buildings last year. Liberty Mutual’s Ann Butterworth, underwriter for the coverage, notes that changing building codes, especially in states like California, are likely to increase demand for green coverages. “We know that those [codes] are changing,” she said, adding that some will require customers to rebuild green after a loss. “If they don’t have the correct coverage on their insurance policy, they will end up absorbing that cost themselves.”

Insurers without the resources or interest in being pioneers will soon find it easier to offer green coverages themselves. The two organizations that develop standard policies and forms for insurers have advanced the cause with new products.

ISO, AAIS New Endorsements

Insurance Services Office (ISO) recently filed the first standard coverage option for commercial property owners interested in rebuilding damaged property with green alternatives.

There are three major components of the new coverage. First, green upgrade coverage will augment existing replacement-cost coverage with an additional limit to address loss settlement of damaged property using more energy-efficient, environmentally preferable materials, products, or methods.

The second component provides for additional expenses including waste reduction and recycling costs, such as the reuse or salvage of building materials. Other expenses include professional fees for the design of green upgrades, certification and equipment testing fees, and building air-out and air testing expenses.

The third offers a business interruption option for insureds with an underlying time-element policy that extends the period of restoration, which recognizes that reconstruction using green standards may take longer than it does with conventional materials.

Also, for the insurers that use its services, the American Association of Insurance Services (AAIS) has developed builders’ risk policy forms that provide coverage for loss exposures related to the “green” certification of an insured project.

Topics California Carriers Legislation Property