Like an increasing number of Americans, Steve Bushnell is concerned about the environment. He recycles. He uses public transportation when he can. He keeps his home’s thermostat at a reasonable level.

As a commercial real estate product director for Fireman’s Fund, Bushnell’s also been instrumental in helping the company roll out some of the first products dedicated to insuring green commercial buildings and encouraging the green reconstruction of damaged traditional buildings.

“This planet is our home and it is our responsibility to care for it and pass it to future generations,” he said. “We should leave it better than we found it.”

Bushnell is hardly alone. By many accounts, the green business movement is taking off. What once might have been the province of health food stores and hippies has gone mainstream. Wal-Mart now sells organic food and is investigating solar power for its stores and alternative fuels for its trucks. General Electric Co. is involved in renewable energy and Vanity Fair magazine plans to publish its third annual green issue this April.

Consumers expect to double their spending on green products and services this year, totaling an estimated $500 billion annually or $43 billion per month, according to findings from a survey by Cohn & Wolfe, Landor Associates and Penn, Schoen & Berland Associates that was released last fall at the Sustainable Green Brands Conference in New Orleans.

That’s not just a bunch of tofu.The value of new green-building construction is expected to exceed $12 billion this year, according to McGrawHiIl Construction Analytics and the U.S. Green Building Council.The nonprofit council oversees the Leadership in Energy and Environmental Design (LEED) program, a nationally accepted rating program for the design, construction and operation of high-performance green buildings. So far, nearly 10,000 projects have registered their intent to gain LEED certification, and 1,228 buildings have received the certification.

In a year when total light-duty vehicle sales declined by 2.5% in the United States, hybrid car sales grew by 38% to 350,000 compared with 250,000 in 2006, according to hybridcars.com. While that’s still a fraction of the 1.8 million total vehicles sold, it’s a significant increase.

Insurers are paying attention. Companies including Allstate, American International Group, Chubb, Fireman’s Fund and Travelers are in various stages of investigating, testing or introducing new products geared toward capturing this potentially profitable new market.

Seeing Green

They are looking at every aspect, from insuring green commercial buildings to green homes; from hybrid cars to alternative energy production; from how green buildings might impact workers’ compensation to business interruption. They’re also looking to reduce their own home office use of natural resources and energy (see “Insurers Take Action “on page 36).

The green market-and the supporting technology - is growing and changing so rapidly that insurers are still struggling to figure out how to best underwrite and price policies. But there’s no doubt that the green market is poised for continued growth, and insurers hope to catch the green wave.

“We’re still in the infancy right now,” Bushnell said.

Fireman’s Fund was one of the first insurers to launch products geared toward green commercial properties. One product offers special coverage to buildings that are green-certified (see “What Is a Green Building?” on page 34.)

Traditional insurance products often fall short of providing adequate coverage for the combination of complex requirements and specialized materials and systems of green buildings. For instance, traditional insurance usually has a maximum cap of $5,000 on trees, plants and shrubs, which would not be enough to replace the greenery on a vegetative or green roof.

(Vegetative roofs replace traditional black asphalt roofs with trees and greenery. The plants’ shade helps to keep the roof cooler, which helps reduce the amount of air conditioning the building needs.)

Also, traditional insurance might not cover the higher cost of installing alternative energy systems, such as solar or wind power systems or geothermal units, which tap into the Earth’s temperature to cool or warm the building.

While there’s great interest in this kind of commercial insurance product, with so few green-certified buildings existing today, it has a somewhat limited market.

Fireman’s Fund wanted to expand its green reach to include the much more common traditional building. So it also introduced an endorsement that would allow policyholders of existing buildings to upgrade to green during reconstruction after a claim.

The endorsement includes coverage for using nontoxic, low-odor paints and carpeting; interior lighting systems that meet LEED or Green Globe standards; water-efficient interior plumbing; and Energy Star qualified roof and insulation materials.The policy also would pay extra if necessary to recycle construction debris rather than put it into a landfill.

A third coverage would pay for the additional cost of having a building certified green, which includes hiring a third-party engineer to review the reconstruction work and all electrical, plumbing and heating, ventilation and air conditioning (HVAC) systems.

Launched in October 2006, all states had approved the Fireman’s Fund’s endorsements by May 2007.

“The market has been really excited about this,” Bushneil said. “In its first year, we don’t expect new products to take off. We have to train the sales force and our underwriters. But our timing was fortuitous. America is just waking up to awareness of green buildings, and there was quite a bit of interest in these products even before they were launched.”

Travelers also has launched a green building coverage enhancement, designed to insure buildings that are already green as well as traditional buildings that would like to upgrade to green after a loss, said Lace Garbatini, national director of enterprise underwriting for Travelers. The endorsement has been introduced, and the company intends to roll it out more widely in 2008.

The company also is drafting a policy for small-business owners, as well as a specific coverage for vegetative roofs. It would include coverage for the increased costs to repair or replace to green standards, and pay for the LEED or Green Globe certification or recertification.

The company’s boiler and machinery department, meanwhile, has developed a new generation boiler product, which allows the policyholder to upgrade a damaged boiler to meet green standards. It insures the new machinery for up to 25% more than the value of the replaced equipment.

“It’s another incentive for insureds to upgrade to green,” said Garbatini.

And last year, Travelers rolled out coverage specifically for wind farms, which includes specialized coverage for the wind turbines.

Calculating Cost

However, insurers are struggling with how much to charge for these new policies.

When Bushnell first began to research the possibility of creating a property policy for green commercial buildings about 18 months ago, there were just 300 to 400 certified green buildings. “Not enough to draw any kind of actuary conclusion from,” Bushnell said.

Fireman’s Fund reviewed what caused the normal losses for commercial buildings. One of the most common was electrical fires, and the largest loss costs often were due to leaking roofs, windows, plumbing and heating, air conditioning and ventilation systems.

Because LEED certification requires a third-party, independent engineering review of all electrical, plumbing and HVAC systems, Fireman’s Fund expects a LEED-certified building will be less likely to suffer losses from those key areas.

So the policy comes with a rate credit “to recognize that in our assessment, green buildings are going to be less likely to have a property loss than traditional buildings,” Bushnell said.

People often think building green means spending a whole lot of extra cabbage, but Bushnell said that’s not the case. Last April, consulting firm Davis Langdon Australia found that building a simple green buildingwithout alternative energy sources or a water recycling system-would cost only 1% to 2% more than erecting a traditional building.

If you put in wind turbines or solar panels, and an alternative water system that recycles rain water or gray water for irrigation and flushing, that might cost 10% more, Bushnell said.

Installing renewable energy might be more expensive, but the cost of operating the systems is generally much less.

“When you add alternative energy, you can reduce your energy bill maybe to down to nothing, if you recycle water, you can save a lot of money on a water bill,” he said.

Fireman’s Fund’s green insurance endorsements generally cost 1.5 to 2% more than traditional insurance. And the company charges a flat rate of $75 to cover a green upgrade for personal property-say, a tenant in an office building-if Fireman’s Fund is just insuring the contents of the building.

Alternative Energy

Chubb has specialized in insuring energy resources since 1985, so it was natural for the company to expand into alternative energies, said Pete Thompson, vice president of Chubb & Son.

“Renewable energy has been around for many years, but with [President] Bush’s energy bill in 2005, there became a lot more interest in it,” Thompson said. “Not that these technologies were not viable before, but with federal, state and local incentives in place, the products came to fruition and the growth has been phenomenal.”

Wind terminals have existed for years, but solar energy and geothermal energy are taking off. So are biomass-processing plants, which rely on agricultural waste such as corn husks or timber waste, to generate power or fuels such as ethanol and biodiesel.

Chubb has put together a “green team” of underwriters, loss control specialists and others across various disciplines (financial institutions, information technology, etc.) to talk about creating possible green products, including one specifically for green buildings.

“We’re still in the creative stage, although we hope to come up with the first draft of the green building property coverage in February,” Thompson said.

Chubb also is interested in how green buildings might impact other lines of business. For instance, employees working in a green building might be healthier and less likely to use workers’ compensation benefits.”We’re looking at different options,” he said.

Home Green Home

Lexington Insurance Co., a subsidiary of American International Group, has rolled out a green upgrade endorsement for its existing homeowners policy. So far the policy is available in the Northeast, but the company hopes to launch it in the rest of the country shortly.

The upgrade includes allowing policyholders to replace damaged systems with more eco-friendly, sustainable energy equipment or more energyefficient products.

“This is such an evolving industry,” said David J. Valzania, vice president of personal lines for Lexington. “Even if you had a relatively efficient home built five years ago, there may be many products available today that are more sustainable or eco-friendly. Maybe bamboo flooring instead of oak, for instance.”

The upgrade costs a “couple percentage points” more than the traditional policy, he said. “Our phone was not ringing off the hook by people asking for greener coverage. But when a home is damaged or destroyed, people are interested in repairing or replacing to as high a standard, and a greener standard, than in the past,” Valzania said.

Lexington is also in the process of developing products for nontraditional green homes, such as those built underground, with a sod or vegetative roof, or those constructed out of straw. The company also is working on a policy for homes that use alternative energy sources, such as windmills, solar panels or geothermal wells.

“If they had such features now and the home burned down, the equipment would be covered but the extra expense to buy generated power would not be,” Valzania said. “If they sold the extra power they createdany individual or entity that generates excess power can sell it back to a power company-then they’d need business interruption coverage,” he said.

As a nonadmitted carrier, Lexington tends to write policies for homes that admitted companies shy away from. Its book of business tends to be more catastrophe-exposed, such as for windexposed coastal properties or with more earthquake-risk exposure.

As an excess and surplus lines writer, Lexington can and does underwrite coverage for unusual homes, but on a case-by-case basis.The company hopes to roll out more standard policies or endorsements, and also is working on a similar policy for commercial property.

Fireman’s Fund is working on a green product for personal lines, but already has offered a green upgrade to people whose homes were destroyed by the October wildfires in California.

Green Machines

Travelers touts that it was the first to offer a 10% discount to hybrid-car drivers.

Allstate is currently testing a product, Allstate Green, which helps offset auto emissions of policyholders by funding reforestation and clean energy projects in the United States. It’s being tested in Colorado and Ohio from November 2007 until the end of this month.

Participating policyholders reduce paper statements by using Allstate’s electronic payment system, which automatically deducts premiums from the insured’s checking account. By enrolling in the electronic checking system, customers will save up to 2% on premiums.

And with every enrollment, Allstate pledges to donate $30 to Carbonfund.org, a nonprofit group dedicated to promoting reforestation and renewable wind energy programs in the U.S. The $30 donation will help offset a typical vehicle’s emissions for one year, at no additional cost to customers.

“We send out 150 million to 200 million paper bills a year,” said Raleigh Floyd, an Allstate spokesman. “Sending out less paper is one easy thing we can do. The move to easy pay means we send out 90% less paper than we were using before.”

Chubb has rolled out ePolicy, which allows customers to receive their policies and related documents via e-mail and store them electronically as securely encrypted PDF attachments. If 20% of Chubb’s customers opt to receive ePoIicy renewals and endorsements, the company estimates it would save about 1,000 trees and nearly one million gallons of water, while preventing the creation of 46 tons of solid waste and 113 tons of greenhouse gas emissions.

Most people are interested in the environment, but aren’t willing to make dramatic changes, Floyd said.

“We looked at discounts for hybrid [cars], and may still do it in the future, but the challenge that we had was to do something big,” he said. “Less than 1% of our book of business is hybrid cars, but we insure 20 million cars, and this is an easy way to tap that. If we got every one of those 20 million drivers to sign up for Allstate Green, it would be the equivalent of the registered drivers of the five largest cities garaging their cars for a year,” Floyd said. “That’s worth paying for.” (Best’s Review, Mar 2008)