While we may think that the demise of the US Climate Bill has somehow pulled climate change out of our collective wallets, climate change has found an unlikely ally- the insurance industry. What’s has been happening in this sector is already making energy management critical to companies, governments, and individuals and impacting us financially. The truth is we’ve been paying for it for some time – here’s how.
1. Insurance Firms Were First to the Climate Change Party – The insurance industry has been analyzing the effects of climate change for decades – not as the political hot potato it has become in America, but rather as an analytical function of risk. Before we politicized climate change in the US, insurers (or more accurately reinsurers) were studying the science behind climate change and the risks it imposes on all of us – and the results have been reflected in how we pay for insurance. Financial giants such as Allianz released a very interesting report with the WWF in 2006 that covers the effects of global warming on the US including flooding, fires, hurricanes, etc. and their impact on insurance rates. It may sound dry, but there’s billions of dollars at stake for these kinds of firms. Back in the 1990′s I saw a “carbon map of the world” by one of the world’s largest reinsurers, depicting the areas around the globe most at risk (and hence, higher premiums) from global warming. To many of us the idea of climate change, energy, and finance seems new and political, but to the insurance market it’s old news and a core to their business.
2. New Green Insurance for Consumers and Corporations – Let’s start with the consumer side of the equation – how this affects you and me. A growing area for insurers is changing insurance rates depending on how you build your home. A growing trend for Green Homeowners Insurance covers rebuilding a damaged home to green standards. This used to be only for new, green homes but now includes retrofits and renovations. If you put solar panels on your roof, your insurance rates may have changed already.
And it’s not just consumers – a new form of insurance is being rolled out for green energy companies such as renewables. New insurance instruments are available (and sometimes mandatory) for all sorts of projects, from solar to wind, tidal, geothermal, and more.
3. Green Energy Insurance – Another area of insurance is a bit more serious – green energy insurance. Many people install solar panels in their homes and are amazed to see their energy meters going backwards as they push energy back into the grid. However utilities see this as a risk: if they are essentially paying you for your energy, they want to have the checks in place to ensure your numbers are correct. Enter Green Energy Insurance, a new kind on insurance that is becoming mandatory in many cities – if you want to reap the gains of putting green energy back into the grid, your utility may require this insurance for the privilege.
4. D&O Insurance for Corporations in Response to SEC Requirements - I’ve left this one for last as it is possibly the most serious in terms of risk to companies today. Directors & Officers (D&O) Insurance protects companies from the actions of it’s directors and officers. Without it, entire corporations would be at risk from the actions of it’s executives. It’s a key part of the corporate structure, and has now entered a grey area due to climate change.New SEC Disclosure Requirements regarding climate change information have spurred a new debate on exactly what D&O insurance covers. Several cases have already been brought about to the Supreme Court as groups target executives and their corporations for their activities that contribute to global warming. You can read more about the growing executive response to energy management and climate change in my recent post.
So while cap-and-trade may be struggling to gain a foothold in the US, entire industries are growing – and have already grown – to incorporate climate change and energy management, affecting how we do business and how we live.
Michael is the former CEO of the Global Reporting Initiative, Carbonetworks, and other sustainability organizations. He has been an advisor and CEO in sustainability for almost 20 years, and writes about technology, sustainability, and social innovation.