Climate and Insurance.org | takefive with Fireman's Fund

Steve Bushnell is a Product Director at Fireman's Fund Insurance Company in Novato California, responsible for development of innovative new products, services and information for commercial real estate customers. He joined Fireman's Fund in 2004, bringing more than 30 years of insurance industry experience having held underwriting, marketing and management positions in a number of companies.

Mr. Bushnell recently contributed to the Ceres report, “From Risk to Opportunity: How Insurers Can Proactively and Profitably Manage Climate Change” which gained national media attention. He serves on the Commercial Sector Committee of the Green California Summit planning committee and has spoken on the unique risks of green buildings at several conferences. He was also featured in the “Turning the Ship” series from Harvard University Graduate School of Design.

Don Soss is Chief Underwriting Officer, Personal Lines, at Fireman’s Fund Insurance Company. In this position, Mr. Soss is responsible for national underwriting strategy, product and pricing implementation, catastrophe management, governance and product launch for the personal insurance segment.

Mr. Soss has served in a number of professional associations, including being an advisory panel member to the California Earthquake Authority; an ACORD property application committee member and ISO property forms committee member.

Scott Steinmetz P.E. is the director of Natural Catastrophe Management for personal insurance at Fireman's Fund Insurance Company.

Since 2001, Mr. Steinmetz has represented Fireman’s Fund in participating in Sustainable Asset Management (SAM) reporting to Allianz, the company’s parent. He is also a member of Allianz’s Climate Change Center of Competence Committee as well as the Alluvial Fan Committee with the California Governor's Office.

Takefive:
In October 2006, Fireman’s Fund launched Green Gard^sm, the first insurance product offered for green commercial buildings. Can you briefly explain the rationale behind your company’s decision to offer this product and what, if any, changes have you made to the product since that time?

Steve Bushnell:
Fireman’s Fund has always tried to differentiate itself by offering coverages and services that respond to the needs of our insureds and trends in their industries. We want to be able to put programs together that are going to be meaningful for our customers and help us sell coverage and services ahead of price.

Four years ago, we began researching trends and issues in the commercial real estate industry. We noticed that green buildings at that point were becoming more prominently mentioned in the press, in various industry publications and at trade shows. It intrigued us. We began doing research on what is a green building, why would a building owner want to spend a little bit more money to build a green building, and what were the driving factors behind it.

We found a very compelling economic value proposition. It begins with the lower cost of utilities leading to higher net operating income, lower operational costs, higher occupancy rates, higher per square rent, and higher sales prices for the building. Green buildings with their superior indoor environmental quality mean healthier and more productive environments. It also appeared that tenants were going to be asking for green space going forward. (Fireman’s Fund itself being a good example of that.) This compelling economic value proposition, combined with the fact that green building costs were coming down as more and more contractors became skilled in building green buildings and green material costs were declining, was beginning to make a whole lot of sense to building owners.

We began looking at the future of real estate and construction in the United States. We concluded that if you’re not in a green building or not considering one, it could well be that your property is going to be obsolete in the next four or five years. The U.S. Green Building Council is talking about certifying 100,000 commercial buildings by 2010, a significant number which is going to have a competitive impact. We concluded that these economic drivers and trends meant that a product that responded to green buildings would have value for our customers.

A secondary factor is environmental. Fireman’s Fund has been has been very concerned about climate change and our own carbon footprint. Our Green Building product is a way to offer an insurance coverage to help our insureds reduce their own carbon footprint and make themselves greener.

We looked at those two forces and concluded that the synergy they created was important for us as a company. It enhanced a lot of what we were already doing internally and corporately, and it also gave us the kind of differentiated coverage that was going to be very powerful in the market.

Takefive:
Soon after last fall’s wildfires in California, Fireman’s Fund announced that certain policyholders whose homes were damaged or destroyed could have their properties repaired with a “green” upgrade. Can you explain why Fireman’s made this decision, and what has the decision meant going forward?

Don Soss:
At the time of the wildfires, we had a green coverage residential form pending before the California Department of Insurance. Although we were unable to offer it as coverage, the Department of Insurance did allow us to provide some of its provisions as an “adjustment upgrade” for those customers affected by the wildfires.

Besides allowing customers to rebuild green, we included two other “adjustment” options. One was replacing plants damaged in the fire with fire resistant plants. Normally, we provide a limit of $1,000 per tree and shrub. We increased that limit to $10,000 if the customer used fire resistant or water-based type plants. There was a lot of damage to exterior plants in the fire, and customers very much appreciated that update.

We also paid for veterinarian bills for animals injured in the wildfires. Although the claims were very minor, we did have one for a horse that developed respiratory problems from the smoke. We paid a $5,000 vet bill for our customer. These were coverages we had filed and were pending that we thought our customer could use.

As for rebuilding to green, we thought this was a great option, especially for customers with total losses. When they rebuild, we would give them the opportunity to rebuild energy efficient. Of the eight total losses that I am aware of, six customers have decided to rebuild green while the other two have not made their decision yet.

At the time we offered this form, LEED® did not have a formal residential certification program, It was a pilot program, so the coverages were not rebuilding LEED® certified. Instead, we picked different aspects of energy efficient, environmentally friendly things they could pick from, starting inside the home, using low VOC paint and carpet. That’s a very attractive option. We also allow customers to replace hardwood floors with bamboo floors. Also, anything that is Energy Star certified, including replacing their HVAC system and windows.

We also included the ability for customers to frame their structures and use any wood molding approved by The Forest Stewardship Council. They use wood products that do not deplete the rain forests. This was included in the adjustment filing still pending before the Insurance Department. We hope to have the form approved shortly. We are going to roll it out later this year in select states nationwide, using a little different approach. We intend to use an optional endorsement that our customers will be able to purchase, but it will be LEED® certified now that the program has been approved.

Takefive:
Your company has worked closely with the U.S. Green Building Council’s (USGBC) LEED program and the Green Building Initiative’s (GBI) Green Globes program to ensure that its coverage and upgrade options align with the industry’s major green certification processes. From your perspective, how have those collaborations worked?

Steve Bushnell:
As we were developing our program, we wanted a set of standards that would be accepted by the building and architectural industries. We scoured the market and found two. The LEED® standards of the U.S. Green Building Council formed the foundation of how we put our coverages together. We joined their organization and have taken advantage of some of their educational programs. We also have taken advantage of their materials to understand, in their context, what a green building is and what a certified green building is.

We also discovered the Green Building Initiatives’ Green Globes program, and especially looking at how it specifies how a building should be built and its interior finish components. In many ways, their program parallels USGBC. Both were viable options. As time has passed, however, it appears that LEED® is the dominant rating system for green buildings.

As we built our coverages, we looked to address the major areas in LEED® that dealt with building construction, interior finish, and the kinds of things we would either repair or replace after a property loss. We made sure that our coverage lined up with LEED® even to the point where post loss, we will pay to recycle the debris rather than just put it in a landfall. This is very important in helping a green building stay green after a loss.

We will also looked at the LEED® requirement for fresh air flush out to preserve the indoor environmental quality after construction. We will pay to flush out the premises that we’ve reconstructed for the two-week period that LEED® requires. We also have built coverage to extend the period of indemnity for business income for additional two weeks to take care of the additional down time. So we have looked to make sure that our program is very compatible with the basic requirements of LEED® and the way we might be able to keep a building green after a loss.

On our green building form, for example, we made certain that we were going to cover vegetated roofs with trees, plants and shrubs. Most property policies will have a limitation for growing plants. We included the full value of the roof to make sure that we were protected that investment. The same thing with underground property that might be related to alternative energy systems and alternative water systems. We made sure our form covered underground property. We also extended the distance from the main structure that will provide coverage from the usual 100 feet to 1,000 feet because we have seen that there a lot of solar arrays in commercial buildings that are being put in parking lots further from the building than normal. We made sure that we’re going to cover the green investment of the insured as fully as possible.

Fireman’s Fund is the first company to introduce commercial building coverages. We believe that we are also the first company to offer a discounted product for LEED®. Our research has shown us that LEED® buildings should be safer and less risky than traditional buildings and we want to recognize that in our pricing.

Takefive:
Fireman’s Fund created a sustainability program within the company in 2000. Can you explain the program to us and describe the results that your company has experienced as a result of the program’s implementation?

Scott Steinmetz:
n early 2000, the Allianz Group, our parent company, initiated at the board level a sustainable development strategy which recognizes that while we’re in business to make money, we also have a broader obligation to society in terms of social issues as well as ecological or environmental contributions.

With that mindset, a lot of our business reflects those core values, recognizing that in these kinds of issues, insurance at its core is a fundamental stabilizer in society. And, so you see our decisions to invest in micro-financing, micro-lending and micro-insurance projects in underdeveloped countries as a way to help sustain and stabilize those areas. As a core product, these small financial transactions can help bring stability in times of crisis in a number of different ways.

The same is true around the idea of green. It’s really recognizing our role in awareness raising and in society to help people connect and understand mankind’s contributions to climate effects. Obviously we have impacts due to climate.

In my specific area of natural catastrophes, every time a hurricane rolls through and makes landfall, there is an economic and human element of damage that needs to be cared for and stewarded. With the increasing higher frequency and higher severity of storm systems, then, of course, there is a natural flow through our business. It’s not only the impact of our business and on our customers, but it is recognizing what role is there to raise awareness around the environment, the atmosphere and effectively carbon or carbon emissions. So, it’s through our sustainable development strategy and our environmental management system that we have worldwide that we are collecting and recognizing that our own operations produce a certain carbon footprint. We have collected information on the energy we consume, the travel we undertake, the waste we produce, the water we consume and the paper we consume. All of those activities have a significant carbon footprint.

We have a goal mandated by the CEO of Allianz to reduce that by 25 percent by the year 2012. So we have some actionable, direct and significant targets in our own operations and, of course, that dovetails with our product evolution, innovation and development as we try to identify ways to help our customers connect with carbon economies and to understand their involvement and investment in carbon.

At the group level, we also have made a substantial investment in our relationship with the World Wildlife Fund. We are also investing some of our own monies – 300 to 500 million Euros – over the next couple of years in renewable energy.

So, between that and in our asset management side, and investment in renewable markets, and sustainable development companies and funds, there is a significant exchange and opportunity for us to be involved in a meaningful way to raise this discussion and raise awareness among the public as well as with our own customers.

Steve and I are both appointees to a board initiative called the Climate Change Center of Confidence that began last year. The board asked this group of eight representatives from among our 160,000 employees worldwide on how we can get all of our operations worldwide to leverage the opportunities created in any given country. Steve and I have had a chance to present what we have undertaken on the commercial side with green buildings and it is being looked at for how it could be applied in Australia, the U.K. and in Europe. That’s the idea behind the Climate Change Center of Confidence. It’s recognizing that climate change is a big issue for the Allianz group worldwide and that we want to leverage our strength internationally to bring the best products to all of the markets that recognize their impact on climate risk.

Takefive:
Finally, can you provide us with your insights on where you see the “green’ movement going, both in terms of product development, sustainability and collaborations within Fireman’s Fund as well as for the insurance industry as a whole in the next few years?

Scott Steinmetz:
From the initiative that Steve and I have been involved in, we get the texture of what is going on internationally and on an international scale. As a result of that, while there are other U.S. operated international companies, none are as prominently placed with a quasi-European and European-U.S. influence like the Allianz group.

We have a strong foundation of research and, of course, we are contributing as the U.S. always does in a strong, efficient, innovative and creative way in bringing products to market in a very expeditious manner. As a result of that, there is this arena of the carbon markets that I think is a component of the global issue on climate risk and climate change. While some degree of assessment is still needed to understand the dynamics at work in the environment, the atmosphere and the changing weather patterns, there is clearly an opportunity to say that probably less carbon into the atmosphere is a better thing.

We’re looking at how we can encourage and foster the carbon exchange and the carbon markets to recognize how can we can promote and sponsor, one, pumping out less carbon dioxide and methane into the atmosphere; two, how we can help people connect with minimizing their carbon footprint; and three, how we can help to develop a way to offset carbon emissions. We are currently looking at a campaign of helping customers who we may or may not sell auto insurance to, and to find a way for them to connect with a mechanism to buy carbon offsets for the amount of driving they do. They would then be able to take on that ownership of the idea and recognize that they do have a carbon footprint and now have a mechanism to be able to offset it. Obviously, offsetting is not as good as minimizing, but it is better than doing nothing. It’s that kind of innovation in the carbon arena that is likely to see some good movement in the near future.

Steve Bushnell:
We are getting ready to launch additional products in the second quarter of this year. One will be a version of our existing upgrade form for manufacturers to replace manufacturing equipment and machinery with more energy efficient components or replacement machinery. We’re also looking at what can we do in the area of sustainable products through underwriting and loss control consultation solutions. Those engaged in sustainable practices could receive a better rate while those that are not could receive training in sustainable practices.

We are also working on our commercial upgrade auto form, where following a loss, we will upgrade from a traditional vehicle to an energy efficient vehicle.

Finally, we are developing a set of consultation practices that will follow LEED® for existing buildings, to give our insureds ideas on low or no-cost things that they can do to start greening their property, to look at green as a journey, not necessarily a destination.

It is our intent to help our insureds to green their buildings, to improve the indoor air quality of their operations and to start capitalizing on the economics of being green.

Don Soss:
We would like to introduce a discount later this year for homes that are LEED® certified. We believe in green, so we are interested in rewarding customers that are already green and helping customers who want to become green or greener. Virtually few homes now qualify for LEED® certification since that program has just been approved, but we think builders will be interested in that certification to help them differentiate themselves in the housing market.

We currently have building risk manager advisers who advice homeowners directly on loss control and the replacement of their homes following a loss. These advisers are now being trained on how to make properties more energy efficient so they will be able to consult with customers on how to become green and tap into some of the vendor information that we have on the commercial side.