Greener Pastures

The insurance industry can capitalize on alternative energy

By Frank J. Coyne

Greener Pastures

Zero tailpipe emissions. Alternative energy sources. Carbon neutrality. Renewable resources.

For the past several years, we have been inundated with news coverage chronicling society's adoption of environmentally friendly practices. While recent economic conditions may have slowed the momentum for change, underlying forces continue to ensure "green" will be an ever-growing part of our vocabulary.

The insurance industry is uniquely situated to influence society's shift to a greener environment. Whether investing in companies championing the development of green technologies or offering risk management solutions to firms operating within such a space, the insurance industry can help advance the cause while enhancing its bottom line and garnering positive public opinion — a rarity these days.

The movement to reduce our country's dependence on oil is well documented, and many companies are racing to find the alternative energy magic bullet. From wind turbines and solar farms to biodiesels and ethanol, from geothermal to tidal power and the associated businesses supporting those efforts, new enterprises are answering the call. They will need our industry to step forward with the resources necessary to effectively and efficiently address the risks inherent in any new venture.

At the local level, businesses and individuals are also doing their part by planning green-certified building development, retrofitting existing structures, or deploying alternative energy technology on-site — rooftop solar arrays, geothermal pumps, and wind turbines. Manufacturers and contractors alike have sprouted up to service this niche. Here again, the insurance industry can offer the risk management tools needed to allow these endeavors to grow and prosper. The insurance industry can help facilitate development by providing coverage and risk management services directly to manufacturers and contractors — or to owners of green structures. The industry can also provide coverage options allowing property owners to upgrade to green after a loss.

Companies recognizing the potential in the "greening" of America can position themselves to take advantage of the growth occurring in this sector. However, as with any new technology, process, or procedure, it is critical we monitor the experience to properly evaluate the risk. We have decades of experience in traditional brick and mortar, and existing life safety and structural engineering standards have developed over time to protect not only buildings but, more important, the lives within.

Being on the front lines in the fight to control losses, the insurance industry needs to collect and analyze the risk data generated by all segments of the green movement. Will various green building techniques react similarly to traditional construction methods during fires and natural catastrophes? Do alternative energy sources reduce the pollution exposure but introduce other, unintended risk potentials? Do green materials and processes introduce long-term maintenance issues not yet considered? Real-world data will be essential in addressing these issues.

The insurance industry can play a vital role in helping our society go green. Going forward, the success of the effort rests in designing and implementing effective products and services and monitoring developments to spot emerging trends.

Frank J. Coyne is chairman and chief executive officer of Verisk Analytics.

Best's Review, January 2011. Copyrighted A.M. Best Company, Inc., 2011. All rights reserved. Reprinted with permission.