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July 1, 2008
Kate McGinn XL Specialty Insurance Company www.xlinsurance.com
With Climbing Energy Costs squeezing profits, concern over global warming and rising environmental awareness, many firms are looking to become “greener,” both in how they operate and in what they offer to their customers.
At the same time, insurance companies are working to meet customer demands for insurance that helps them reduce their environmental impact or achieve their environmental management goals. According to an October 2007 report from Ceres, a national network of investors, environmental organizations and other public interest groups working with companies and investors to address sustainability challenges, more than 400 new insurance initiatives, including green building credits, drought protection in developing countries, and incentives for investing in renewable energy and carbon emissions trading, are being offered to tackle climate change.
Environmental insurance grew out of client needs to meet increasingly stringent environmental regulations. Long before green building was in vogue, specialized environmental insurance providers were helping companies manage their environmental exposures, providing coverage to help businesses rectify environmental impacts resulting from their operations. For more than a quarter century, insurers have provided pollution insurance, which often includes its own kind of environmental protection. Because of the nature of the business, the waste industry is more familiar with the environmental insurance market. But today, companies in a wide variety of industries seek environmental insurance.
Many insurers are enticing customers to build green through sustainable property coverages. Many of these coverages are “endorsements,” added enhancements to a business' property policy. This allows the insured to collect an amount greater than the value of the damaged property provided that it is replaced with an environmentally friendly substitute.
So why are insurers encouraging green building? According to the U.S. Green Building Council, which oversees the Leadership in Energy and Environmental Design (LEED) Green Building Rating System, buildings in the United States account for 70 percent of electricity consumption, 39 percent of energy use, 39 percent of all carbon dioxide (CO2) emissions, 40 percent of raw materials use, and 30 percent of waste output, or 136 million tons annually. Designing for sustainability yields lower energy costs, increased employee productivity and reduced greenhouse gas emissions, making them easier to insure. Additionally, companies that take an active approach to managing risks — even global warming risks — are viewed more favorably by their insurers.
Accordingly, the scope of environmental coverage is broadening. A typical environmental insurance policy — a pollution and legal liability insurance policy, for instance — provides coverage for loss, remediation expenses, and legal defense for immediate and gradual pollution conditions resulting at or from insured locations. Some insurers are providing policy enhancements that include:
Expanded mold protection, including first- and third-party mold discovery
More natural resource damage coverage
Built-in transportation coverage for waste or products transported by third-party carriers
Ability to issue state required financial responsibility forms for regulated underground storage tanks
Punitive damages, where allowable by law
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