Insurers often lead the way in developing safety policies and standards. It makes sense since it is in the insurers' interest to lower the risks faced by their policy holders. Lower risk equates to lower claims and lower claims equates to greater profit. Enlightened capitalism at work!
Insurers have also been driving a quiet revolution over the past decade or so by increasing incentives for business owners to go "green" or to adopt more eco-friendly business practices and infrastructure.
Many business insurers now offer discounts for many green business practices. Why? Quite simply, better profitability and lower risk. Businesses adopting eco-friendly practices are better and lower risk customers. This allows business insurers to offer discounts to the premiums for business insurance to these customers.
Firemans Fund has been a leader in this area (the first to start offering "green" coverage in 2006) and describes its reasons for policy discounts for green businesses as follows:
"Our customers find that going green improves cash flow, operating income and asset values. For example, green hotels see higher occupancy, and real estate properties rent faster and at higher rates."
Other insurers may look at the safety aspect. Non-toxic, no-fume paints and wall coverings may lead to lower worker illness and, in the event of a fire, less toxic fumes. LED lights and low use electrical appliances reduce heat and risk of fire. And these are just some examples.
Many different programs are available for businesses looking to go green.
- Green Upgrade Building Coverage - Most insurers utilize the Leadership in Energy and Environmental Design (LEED) standard to determine if a building is considered green. It is a demanding standard and most older brick and mortar businesses cannot meet the standard immediately. But, what if the business suffers a loss? Does it make sense to replace destroyed energy-wasting systems with new energy-wasting systems? Unfortunately, it often makes economic sense because the older systems are often cheaper than newer energy-efficient systems. Many insurers now offer, whether as an endorsement or as a stand alone policy, a green upgrade option. This option generally allows the business to rebuild with green alternatives and pays for the additional cost and expertise necessary to rebuild green. Some policies will pay for the extra expense necessary to replace old equipment with energy saving equipment.
- Green Building Coverage and Discount - For those businesses with LEED compliant structures and buildings, insurers offer discounts on property insurance. The discount varies from insurer to insurer. But, the number of insurers offering discounts grows every year. At the beginning of 2010, the Insurance Information Institute stated 22 different companies were offering discounts for green initiatives. The discounts can be as high as 10%.
- Green Fleet Discounts - Some Commercial auto insurers have programs offering discounts for both existing vehicles and for upgrading a fleet with hybrid automobiles in the event of a loss. One insurer, Infinity Insurance, took its own advice in creating a green fleet and reported to greenfleet.com: "Since 2006, fleet mpg has increased from 16 to more than 23... [Greenhouse Gas is] reduced from 5,223 metric tons to 2,223 due to lower fuel use and better fuel mileage. Fuel consumption has dropped by 115,033 gallons, saving $225,000."
- Pay-as-you-go Fleet Coverage - The concept of a pay-as-you-go (PAYGO) auto policy is definitely a green concept. Your commercial auto policy premium is based on the amount of vehicle use. Your business pays a premium based on a variable totally in the control of the business - the amount of miles driven by the company fleet. The discount comes from lower premiums when premium dollars are tied to travel efficiency.
The programs above are the insurance products that lead the green insurance product field. There are other programs and assistance available from many insurers. For example, one fear many businesses have about new energy systems such as wind or solar is the potential for a loss of power and business outage. This is especially true for businesses that might be considering going "off the grid." There are business interruption endorsements that would cover such a loss. Another example would be coverage offered by some policies for a loss of tax or federal program incentives in the event of a covered policy loss.
When insurers began offering green discounts, there were some claims that the green premium plans were more marketing hype than a real commitment by insurance companies. Almost a decade later and more and more business insurers are offering some premium benefit for "going green." These discounts can be expected to become a regular part of risk management as more and more building codes adopt and insist on green initiatives and systems. This is already happening in the personal market. In California, the "green upgrade" endorsement is already a part of the standard homeowners policy where that upgrade is needed to be added as an endorsement in other states. The trend will continue.
Talk with your insurance professional and insurer to determine if your company can benefit from the many green policy discounts available in the business insurance market.