Recommendations

Technology Assessment and Research & Development

• Conduct a systematic evaluation to identify and quantify efficiency and indoor-air-quality enhancement strategies that make a property less likely to sustain insured losses. This activity would seek to evaluate the statistical likelihood of reduced loss for each case and estimate their corresponding economic value. Measures must be linked to the relevant insurance segments (e.g. property, health, professional liability). This paper has focused on measures applicable to buildings. Measures applicable to the transportation and industrial sectors should also be evaluated. Characteristics of efficient technologies that could inadvertently lead to increased insured losses must also be identified.
• Use advanced geographic information system approaches to conduct hazard mapping. Variables such as climate and building stock data could be used to determine where certain buildings-related losses are likely to occur and then to examine the potential for energy savings, emissions reductions, and loss prevention via regionally targeted retrofit and new construction measures.
• Conduct focused research and development. The insurance industry currently conducts only a limited amount of R&D on technologies that reduce risk. By contrast, electric and gas utilities conduct hundreds of millions of R&D related to their markets. Considerable leverage could be achieved by leveraging existing government energy-efficiency R&D activities so as to expand their scope to include insurance-related considerations.

Market Transformation

• Develop differentiated premiums and other insurance products to reflect the relative costs/benefits associated with energy-efficiency features. Differentiated premiums would send a"price signal" to risky market segments, encouraging them to implement safe (and energy-efficient) measures recommended by the insurer. Radon warranties, insurance for third-party financing of energy-efficiency improvements, and pay-as-you-drive insurance are examples of innovative insurance products that could stimulate increased investment in energy-efficiency measures that would also reduce insurance losses.
• Demonstrate"Leadership by Example." The industry could systematically assess its own buildings, identify cost-effective efficiency-improvement opportunities, and exercise purchasing power to pull new efficient technologies and practices into the market. Identifying and implementing energy-efficient ways to mitigate indoor air quality problems should be a parallel goal.
• Encourage inclusion of strategic energy efficiency measures when retrofitting existing buildings for improved fire, flood, wind, and earthquake safety. Considerable economies of scale can be achieved when multiple retrofit packages (i.e., energy and non-energy measures) are implemented simultaneously. The same rationale should apply to replacement of homes lost in natural disasters.
• Survey the energy-efficiency industry to identify emerging technologies and services that are promising investments. Build portfolios of investments to stimulate those markets and to benefit from the financial growth of energy-efficiency industries.
• Evaluate opportunities for selling efficiency services as a new business line. Possibilities include technologies and operations strategies such as commissioning, measurement and verification, and quality assurance on a fee-for-service basis. This is still a fledgling industry with room for new entrants.
• Provide strategic information to energy users. Because insurers communicate with virtually all owners of buildings, major energy-using equipment, and automobiles, they, like electric utilities, are in a powerful position to advise many people about energy efficiency. A promising avenue is labeling systems, already being developed to foster energy-efficiency but not yet tailored to identify safety features of efficiency measures.

New Partnerships

• Support the expansion of the North American Energy Measurement and Verification Protocol (NEMVP) to include avoidance of adverse health and safety conditions, and energy-wasteful ways of mitigating the problems. New features could be added, e.g. to incorporate consideration of indoor air quality issues and other safety-related issues of concern to insurance companies.
• Become familiar with existing research, development, and deployment programs; evaluate options for participating in R&D. The U.S. Department of Energy and the Environmental Protection Agency are active in research, development, and deployment of energy-efficiency measures. However, very little focused research is currently being conducted on the safety-enhancing aspects of energy-efficient technologies. In one existing effort, the Electric Power Research Institute has recently formed the Disaster Recovery Business Alliance (DRBA), with the goal of using technology and advance planning to mitigate losses from disasters. There is also a critical need to carefully identify indoor air quality problems, understand the sources of indoor air pollutants, evaluate mitigation measures, quantify the impacts of adverse air quality on productivity, develop improved sensors and monitoring strategies, and integrate air quality considerations in the development of building codes and standards.
• Review existing new-construction and appliance standards for energy efficiency and evaluate more demanding efficiency standards to reduce risk of insured losses. Current standard setting is based on cost-benefit analyses of energy savings and incremental purchase costs. The economic and social benefits associated with risk-reduction are not included.
• Support code compliance efforts. DOE, EPA, and various state energy offices are working to improve compliance with energy codes. Insurance companies have a parallel interest in compliance with safety codes. More than 75% of code enforcement officials failed an competency exam delivered by the Insurance Institute for Property Loss Reduction. The insurance industry could join in efforts to train and provide education and incentives to code officials to improve compliance with both energy and non-energy elements of the codes.
• Form partnerships with energy utilities. Insurance companies and utilities could collaborate in mutually beneficial ways, bringing each other new customers and sharing complementary skills and market data. Considerable resources could be saved by pooling resources on projects that would otherwise be performed in duplicate.
• Give special consideration to problems and opportunities in the Developing World and Formerly Planned Economies. Special attention should be given to the situation in developing countries and formerly planned economies. Today these countries are responsible for about one-half of greenhouse-gas emissions related to energy use, and their share is rapidly growing. Energy efficiency is particularly poor in these countries, and the rapid rate of development in buildings, industry, and transportation offers immense opportunity for efficiency improvements. Current cooking and heating practices in many rural areas are tremendously inefficient and represent a serious indoor air quality problem. Property and health insurers will have an increasing stake in these countries as their economies grow and so have a vested interest in helping those countries change course now. A variety of international aid agencies, multilateral banks, and governmental bodies already have programs to promote energy efficiency in these parts of the world--such as the Joint Implementation program--but, energy-efficient technologies and their potential to reduce insurance losses are not emphasized.