Developer Erik Robbins got an unexpected discount when he recently renewed a property insurance policy on a "green" office building he owns in San Francisco.
Robbins got a discount of about $1,500 on his $40,000 premium for a warehouse he retrofitted in 2000 into leased office space incorporating environmental building codes to create a healthier work environment, minimize water use and boost energy efficiency.
"I wasn't expecting (the premium) to go down — I was actually hoping it wouldn't go up too much," he said.
Robbins is one of a growing number of insurance buyers being rewarded for little more than using products that meet environmental standards, despite the likelihood that insurers would face higher replacement costs in the event of claims.
"I am asking for something extra: In the case of a catastrophe they replace the building to an (environmentally) certified standard," Robbins said.
Fireman's Fund, a U.S. unit of German insurer Allianz AG that underwrote Robbins' policy, has since January sold half a dozen of its "Green Coverage" policies, a new property product, to owners of private, commercial real estate across the U.S.
It is early days, and the insurer does not yet have any historical loss data; but it believes the discount on the policies, set at 5 percent, will pay off. And it plans to eventually introduce similar property policies for homeowners.
"It makes economic sense if our assumption that green buildings are safer buildings" proves true, said Stephen Bushnell, director for commercial real estate products.
Robbins, who is currently developing a residential project also designed to meet rigorous environmental codes, said he is sold on "green" insurance products, whether or not he gets a discount. The biggest benefit is that the insurer would pay for his property to be rebuilt to a certified environmental standard if destroyed in a catastrophe, he said.
Green policies are also cropping up in other areas. Travelers Cos. Inc.'s Travelers Insurance now offers a 10 percent break to drivers of hybrid autos, powered by a combination of rechargeable batteries and gasoline.
However, some see the "green," or environmentally friendly, insurance trend as just a public relations gimmick.
"I don't think economics are much of a factor, frankly," said David Anthony, insurance analyst with Argus Research. "This is so small, it is not a significant factor in the valuation of risk. They are doing it to look nice."
While hard economic data to support the trend are sketchy, the greening of the industry looks set to continue. Beyond discounts, some insurers plan to tell investors more about environmental procedures while others are looking at rolling out more complex products to help companies handle carbon emission regulations.
Pressure on insurers began to build in the wake of record 2005 hurricanes costing insurers about $80 billion. This has been fueled by scientific evidence that man-made carbon dioxide emissions are increasing the chance of global catastrophes.
Calvert Asset Management, a shareholder activist fund, has successfully petitioned at least two of the insurers in which it invests — Prudential Financial Inc. and Hartford Financial Services Group Inc. — to publish more information on their approaches to climate change.
Prudential, an annuities provider and life insurer, will disclose more to shareholders on how it minimizes environmental wear-and-tear, from stocking recycled paper in its offices to providing its annual report in an electronic format once public company regulations allow it to do so, the company said.
Insurers are also coming under pressure from some U.S. regulators, and from European peers who have better environmental track records.
Earlier this month, a group of corporate heavyweights, including European insurers, called on the U.S., the largest emitter, to curb its carbon dioxide emissions by up to 90 percent.
This presents a business opportunity that American International Group Inc. , the world's largest insurer, is already weighing.
The company said it may add carbon credits to the Dow Jones-AIG Commodity Index, providing a platform for investors to trade credits designed to offset carbon emissions.
