Shared values can unite people and motivate them to work together toward a common goal. Shared recognition of an existential threat, an understanding of the risks involved and basic pragmatism may be even stronger motivators.
Hardly a day goes by without even the most hardened climate skeptic being confronted by dramatic evidence of the global environmental crisis, from the breakup of one of the fastest moving glaciers in the Antarctic to temperatures topping 125 degrees in the Middle East to triple-digit temperatures setting daily records across U.S. West Coast. This growing threat is bringing together a new set of allies who are partnering on solutions to combat climate change both now and in the future.
Insurance companies and investors in the cleantech industry historically have not seen eye-to-eye due to the nature of the new technologies being pushed by the investors. But with climate change related losses ramping up, insurers are now looking to these new technologies to help in the climate fight and are expanding their coverage appetites to help achieve this.
Insurers, now more than ever, are extraordinarily motivated to play a key role in this fight alongside their new ally, the cleantech investor.
Climate, Severe Weather, Costs and Resilience
In 2021, nowhere in the United States has the crisis been more evident than at Lake Mead, the largest reservoir in the United States, created by Hoover Dam and supplier of water to 25 million people in the U.S. West. The reservoir’s record-low levels are a threat not only to the region’s water supply but also to farmers and recipients of the electrical power the dam’s hydropower plant provides.
Insurance Information Institute (III) CEO Sean Kevelighan recently addressed the National Association of Insurance Commissioners’ (NAIC) Climate and Resiliency Task Force, sharing some staggering statistics showing what climate-related disasters have cost insurers. According to PropertyCasualty360, Kevelighan told the task force that insured losses caused by natural disasters had grown by almost 700% since the 1980s, with four of the five costliest disasters in U.S. history occurring in the past decade.
During the past 40 years, Kevelighan said, insured losses from natural disasters climbed from an annual average of $5 billion in the 1980s to $35 billion in the 2010s. In 2020, he said, U.S. insurers paid almost double the average of the previous decade: $67 billion in claims related to natural catastrophes last year alone.
Where is this leading? To a very bad place, if things don’t change. Given our current trajectory — as projected in the CRO Forum whitepaper “The heat is on: Insurability and Resilience in a Changing Climate” — economic losses related to climate change by the end of this century will reach $550 trillion.
Such losses would be unsustainable, of course — not only for insurers and the businesses they protect but for the planet. Cleantech, along societal awareness and sensible regulation, is the key to environmental resilience.
“Environmental, social and governance issues — ESG — are in the insurance industry’s DNA,” the Insurance Information Institute’s Kevelighan said, adding, “The insurance industry’s focus on resilience is starting to pay dividends as more Americans recognize the very real risks their residences face from floods, hurricanes and other natural disasters.”
While residents recognize the risks to their property and businesses recognize climate-related disasters’ role in creating the ongoing hard market for Property and Casualty Insurance, insurance agents and brokers experienced in cleantech recognize the unique risks individual companies in the industry face. These companies include:
- Contractors — companies that construct LEED-certified buildings or install cleantech apparatuses, such as solar panels and wind turbines.
- Manufacturers — companies that produce the equipment that creates environmentally friendly energy.
- Developers — including producers and distributors of electricity from clean technology.
- Financiers — investors and lenders who provide the capital necessary to operate a cleantech company and monetize the company’s product or services.
- Service firms — businesses that enable contractors, manufacturers and developers to optimize operational efficiency.
Each sector faces unique risks, and no two companies within a sector is exactly alike, with variables including exposures, size, clientele, local regulations and financials. For companies that produce, distribute or store clean energy, risks are typically property-related, with exposures that include equipment defect and severe weather. Storm-prone locations such as the Midwest and South, for example, are especially prone to damage from wind and hail.
Yet the importance of a comprehensive insurance program to cover exposures within the cleantech industry too often is undervalued or even overlooked. Case in point: here’s a Medium article from a cleantech expert with a master’s degree and Ph.D. from MIT who expounds on “Cleantech’s Comeback” for 2,570 words — many of them on investment, but with no mention of insurance.
And yet a customized insurance program that addresses a cleantech company’s risks and exposures is among the attributes that attract venture capital investors and enable businesses to procure both private and government contracts.
As the author of the Medium piece himself writes: “The efforts to align capital to the realities of technology development and the needs of financial markets at all stages will remain undervalued without commensurate attempts to tackle the daunting challenges on the commercialization side for cleantech startups.”
Among those challenge is providing the essential insurance coverages. For most companies, these include:
- Business Interruption
- Commercial Property
- Commercial Crime
- Cyber Liability
- Directors and Officers (D&O)
- Employment Practices Liability
- Equipment Breakdown
- Errors and Omissions (E&O)
- Fiduciary Liability
- Intellectual Property
- Key Person Life
- Transit/ Marine
- Premises Pollution Liability
- Product Liability
- Umbrella and Excess Casualty
- Workers’ Compensation
To have a conversation about your insurance program and services that include risk identification and analysis, contract review, claims handling and brand protection, contact me. You’ll find we share the values of protecting the planet and running a successful, responsible business.
To learn how you can keep your employees aware and engaged, and to ensure your company’s policies align with your business goals, register for Alera Group’s July 15 webinar, “Employee Engagement: Do Your Policies and Communications Meet Your Goals?”
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About the Author
Legacy Risk & Insurance Services, An Alera Group Company
Drew Bolger joined Legacy Risk & Insurance Services in 2015, focused on extending the firm’s client base in strategic client segments. A 2014 recipient of Business Insurance Magazine’s 40 under 40 award, he most recently worked for Wells Fargo Insurance Services (WFIS), in San Francisco. At Legacy, he focuses on developing and providing risk management and insurance brokerage services for a range of companies, including businesses in the technology, life sciences and real estate industries.