Some insurers offer homeowners insurance policies that, in the event of a fire or other disaster, allow policyholders to rebuild to environmentally responsible “green” standards, even if they had not purchased such a policy originally. Green standards, part of the sustainability movement, include energy conservation benchmarks and the use of renewable construction materials. The Green Building Council introduced its Leadership in Energy and Environmental Design (LEED) certification program in 2001.
According to Ceres, buildings account for more than one-third of greenhouse gas emissions and green building practices can reduce energy use and emissions by more than 50 percent. With green commercial building construction expected to rise significantly. over the next few years, a growing number of insurers are offering green commercial property insurance policies and endorsements, some of which are directed at specific segments of the business community such as manufacturers. The first green commercial policy was introduced in 2006.
n general, the policies allow building owners to replace damaged buildings, whether or not they are already certified green, with green alternatives including energy efficient electrical equipment and interior lighting, water conserving
plumbing, and nontoxic and low odor paints and carpeting. They also may pay for engineering inspections of heating, ventilation, air conditioning systems, building recertification fees, the replacement of vegetative or plant covered roofs
and debris recycling. Some cover the income lost and costs incurred when alternative energy generating equipment is damaged.
The goal of every insurance company is to correlate rates for insurance policies as closely as possible with the actual cost of claims. If insurers set rates too high they will lose market share to competitors who have more accurately matched rates to expected costs. If they set rates too low they will lose money. This continuous search for accuracy is good for consumers as well as insurance companies. The majority of consumers benefit because they are not subsidizing people who are worse insurance risks—people who are more likely to file claims than they are.
The computerization of data has brought more accuracy, speed and efficiency to businesses of all kinds. In the insurance arena, credit information has been used for decades to help underwriters decide whether to accept or reject
applications for insurance. New advances in information technology have led to the development of insurance scores, which enable insurers to better assess the risk of future claims.
An insurance score is a numerical ranking based on a person’s credit history. Actuarial studies show that how a person manages his or her financial affairs, which is what an insurance score indicates, is a good predictor of insurance
claims. Insurance scores are used to help insurers differentiate between lower and higher insurance risks and thus charge a premium equal to the risk they are assuming. Statistically, people who have a poor insurance score are more likely to file a claim. Insurance scores do not include data on race or income because insurers do not collect this information from applicants for insurance. The Poor Economy Has Not Had a Negative Impact on
Equal Opportunity on how the use of credit information may affect the availability and affordability of property/casualty insurance, whether the use of certain factors by credit scoring systems could have a disparate impact on minorities and, if so, whether the computer models used could be modified to produce
comparable results with less negative impact.
The study is expected to be finalized sometime 2010. In a similar study, the FTC found that auto insurers’ use of insurance credit scores leads to more accurate underwriting of auto insurance policies in that there is a correlation between insurance scores and the likelihood of filing an insurance claim. The FTC report, Credit-Based Insurance Scores: Impacts on Consumers of Automobile Insurance, released in July 2007, also states that credit scores cannot easily be used as a proxy for race and ethnic origin.