US insurer State Farm Florida was this month ordered to issue credits and make refunds worth $120m to its policy holders in Florida for failing to provide discounts to its policy holders who had adapted their properties to protect against hurricane damage. State Farm will be issuing credits and refunds to around 98,000 of its policy holders over the next year, as well as paying a $1m fine. The State Government of Florida introduced insurance credits as an incentive in 2005, to help reduce the cost of premiums.
Incentivisation is not new to the private or public sector, but it is increasingly being used to support climate change initiatives. For instance, in the public sector the London Borough of Lambeth has introduced a number of schemes to encourage energy efficiency in the home, including grants and discounts. One of the schemes is the Low Carbon Buildings Programme, which offers grants to private home owners who install low-carbon technologies in their home, such as wind turbines, solar panels and heat pumps.
In the private sector, Barclaycard has recently introduced its Breathe, a credit card which, according to Barclays, supports the fight against climate change. As well as 50 per cent of it profits being spent on environmentally-friendly projects, the card also offers discounts and low interest rates on selected green spend items.
The insurance industry is now also taking on the idea of green incentives. In the UK, MORE TH>N car insurance, a subsidiary of Royal Sun Alliance, recently introduced its innovative green wheels scheme. The scheme introduces ‘green box’ technology, which is a small device that hooks up to a car’s engine, and tracks information about the drivers driving style.
That information is than transferred to MORE TH>N, who display it on their website, and the driver is rated from A to G, with A representing a minimal carbon footprint and G showing that the car is having a negative impact on the environment.
Dowshan Humzah, Product Director at MORE TH>N, says: "Green Wheels is great news for anyone interested in taking more responsibility for their own carbon 'tyre-print’. Furthermore, by helping motorists drive more efficiently, the 'Green Box' can also help cut the cost of motoring."
Currently, a drivers rating does not have an impact on the costs of premiums, but this is something that MORE TH>N are hoping to work towards in the future.
The Green Insurance company, also based in the UK, offers a range of green benefits in their car insurance packages, including 100 per cent offset of the car’s emissions and 5 per cent of the companies profits going to green charitable causes. The company also offers up to 5 per cent discount if the car is a green car or if it does low mileage, therefore encouraging its customers to adopt more environmentally-friendly practices.
In the US, a new bill has been approved by the Californian Assembly that will allow car insurers to provide discounts to customers for participating in voluntary mileage-based car insurance programmes. The Bill was put forward by Assembly Member Jared Huffman, and the aim of the Bill is to create records of mileage that are far more accurate. Currently, a policy holder only has to provide an insurance firm with estimated mileage, which leads to in-exact records. More detailed records will allow those who are actually driving less to be rewarded. As with the MORE TH>N scheme, this programme allows drivers to accurately monitor their own carbon footprint.
Huffman says of the scheme: “This is a win-win for consumers and the environment.”
Based on a pilot project in Texas, if just 30 per cent of drivers in California participate, 55 million tons of CO2 could be wiped away in the US state between 2009 and 2020. According to Huffman, this is equal to taking 10 million cars off the road.
Car insurance is not the only kind of insurance that lends itself to incentivisation; however. Recent research carried out by Lloyd’s and Risk Management Solutions (RMS) examining flood risk in coastal areas says that insurers can play a key role in encouraging policy holders to adapt properties against flooding by introducing risk-based pricing. Such pricing would reward policy holders who have adapted their properties with lower premiums.
Lloyd’s Chief Executive, Richard Ward, underlines the vital role that the insurance industry can play: “The world cannot insure its way out of climate change, but the insurance industry can play a key role in the fight against it by encouraging adaptation.
Across the board, organisations are now finding that they can boost their profits while promoting the green agenda. Customers are also getting better deals for being more environmentally friendly. On top of this, publicity surrounding such schemes can also both highlight environmental issues and raise the profile of the organisation. As Huffman points out, incentives can provide a win-win situation.
