Home sweet "green" home

Fireman's Fund offers green upgrade to homeowners policy

By Elisabeth Boone, CPCU

As Kermit the Frog famously declared: “It’s not easy being green.”

It’s also not cheap ... but now, thanks to an endorsement available to the holders of Fireman’s Fund’s Prestige® Home Premier homeowners policy, insureds who sustain a covered loss can replace damaged materials, systems, and appliances with products that meet standards set by the U.S. Green Building Council. Launched in July 2008, the Green Home and Personal Property Upgrade is currently available in 36 states.

Fireman’s Fund is no stranger to the world of green insurance coverage; in 2006 it was the first property/casualty insurer to offer green insurance to the U.S. commercial marketplace. Its Green-Gard (SM) suite of coverages is available to the owners of both traditional and green buildings as well as to green manufacturers. Since the product’s launch three years ago, the insurer has expanded eligibility to include historic buildings, hotels, restaurants, and commercial auto risks.

Given this background, “Green homeowners coverage was a natural for us,” says Donald Soss, vice president of personal insurance at Fireman’s Fund. With more than 20 years’ experience in personal lines underwriting with a focus on the affluent market, Soss is enthusiastic about being at the forefront of the green homeowners insurance trend.

“Right after we introduced green coverage for commercial risks, some of our agents started asking us when we were going to offer a homeowners product, so we knew there was some agent interest,” Soss says. “Also, our parent, Allianz, has mounted a major initiative in sustainability and has challenged all of its operating entities to develop sustainable products. As a result, we’ve had great support from Allianz for our green homeowners option.”

Allianz ranks as the most sustainable insurer in the Dow Jones Sustainability Index and has made a commitment to reduce its carbon emissions by 20% by 2012.

Pointing to another key source of support, Soss says, “Our company’s experience on the commercial side has been very helpful to us in developing our green homeowners coverage. We had the benefit of consulting with experts in loss control and the LEED certification process.” (LEED stands for Leadership in Environmental Energy and Design, a series of certifications granted by the U.S. Green Building Council.) In fact, Fireman’s Fund is a member of the Green Building Council.

Focus groups respond

“Before we launched the Green Upgrade, we waited for LEED to be available for homes,” Soss explains. “That happened in August of 2007. In the meantime, we did some analysis to determine if there was a need for green coverage among our affluent customer base.

“We conducted both agent and customer focus groups,” Soss says. “The agents all represented Fireman’s Fund, and the results were mixed: Some agents were enthusiastic about a green homeowners option; some didn’t see a need; and others thought it was a good idea if it were offered at the right price point.”

Although initial agent response to the green homeowners initiative was mixed, Soss sees growing interest as agents learn more about the concept.

“Some agents have been early adopters and are leading the pack; some are even taking steps to become LEED certified,” Soss says. “Others are just starting to come around, realizing that green construction is the wave of the future, especially with the incentives created as part of the economic stimulus package.

“We put together a video presentation for one of our producer schools that explains all the coverages, and there was great interest among the agents; some even put the video on their Web sites to promote it to their customers,” Soss says.

On the customer side, the aim of the focus group was to ascertain attitudes about green homes and technology in general, with no mention of Fireman’s Fund. “We gave participants some education on the health benefits of living in a green home with toxin-free paint and carpeting as well as the cost savings made possible by increased energy efficiency,” Soss says.

“When people in the focus group understood the advantages of living green, there was a lot of interest. Between 40% and 60% of the participants expressed some level of interest in the green concept,” he continues.

Next, Soss says, “We asked probing questions like, ‘What would you be willing to pay for a green enhancement to your homeowners policy?’ We learned that participants would be willing to pay about 4% of their homeowners premium for a green endorsement. This was very good news because our research showed that we could do it for about 2%.”

In response to that input, Soss’s division created a tiered pricing structure for the Green Upgrade based on a premium of $70 per $1 million in insured value, with a minimum annual premium of $25 for a home with an insured valued up to $350,000, and a maximum annual premium of $600 for a home whose insured value is $8.6 million or more. The Green Upgrade is available to condominium owners as well as to the owners of single-family homes.

Based in Novato, just north of San Francisco, Fireman’s Fund has its finger on the pulse of California’s green revolution. “Because the interest in green living is so great in California, we decided to build the Green Upgrade into the Prestige Premier homeowners form for every Fireman’s Fund insured in the state,” Soss says.

“We’ve had great support from Governor Schwarzenegger and Insurance Commissioner Steve Poizner; here in California, the commitment to green living is solid from the top down,” Soss asserts.

Other state insurance departments have been equally enthusiastic about the insurer’s green homeowners initiative, Soss remarks. “In Arizona, we filed the form one day, and the next morning we had approvals waiting for us. The approvals also flew through in several other states; I’ve never seen anything like it. Most insurance departments are really big on the green concept,” Soss says.

Rebuilding green

The Green Upgrade provides comprehensive coverage for the costs of rebuilding a damaged or destroyed home with green technology and materials. In the event of a total loss, the upgrade will pay to rebuild the home to meet “certified” requirements of the LEED for Homes Green Building Rating System of the U.S. Green Building Council. Coverage includes the services of accredited green industry professionals to help with planning and construction, as well as the cost to obtain LEED certification for the rebuilt structure.

The upgrade also covers the cost of environmentally sensitive demolition and promotes the use of sustainably developed and recycled materials. These include Forest Stewardship Council-certified wood for millwork, ceilings, siding, and framing, where available; low-VOC (volatile organic compounds) interior finishes like paints, coatings, primers, and sealants; water-saving plumbing fixtures; and the replacement of ozone-depleting refrigerants and fire-extinguishing agents that contain CFCs (chlorofluorocarbons).

Also covered are the costs of rebuilding and replacing with EnergyStar®-rated appliances, lighting, electronic equipment, and roofing and insulation, as well as an EnergyStar upgrade of heating, ventilation, and air-conditioning systems. Finally, when the rebuilding process has been completed, the upgrade covers the cost of flushing toxins out of the house before the residents move back in.

Turning to another aspect of Fireman’s Fund’s green homeowners program, Soss says, “We give a 5% premium credit for homes that are already LEED certified. In addition to the green rebuilding option, we want to reward insureds who are proactive and have already become LEED certified.” In the event of a loss, the coverage pays the cost of recycling debris and also pays up to $25,000 toward the LEED certification process. Insureds have the same coverage features contained in the Green Upgrade. The discount is not available in California.

Explaining the rationale for the premium discount, Soss says, “We knew intuitively that a home that has met LEED certification standards has been subjected to intense scrutiny with respect to design, construction, systems, and materials. For example, many of these homes have energy-efficient water systems, so the threat of water damage is reduced.”

The cost factor

Although green home construction and rebuilding aren’t cheap, Soss observes that some items are affordable, like paint that contains low volatile organic compounds. Other materials carry a high price tag. “The most expensive product is Forest Stewardship Council-certified wood,” Soss remarks.

“Every step of the process has to be inspected, from cutting the wood to shipping it. This wood doesn’t deplete the rainforest, and on average it costs about 15% more than ordinary hardwood. The green builders we interviewed were strongly committed to the use of this wood,” he explains. “It’s very expensive, but we thought it was important to cover its cost in the Green Upgrade.”

Like most emerging technologies, green construction can be expensive. As the technology is refined, however, the cost of building or rebuilding green gradually will become more affordable for mainstream Americans. As a leader in the green insurance movement, Fireman’s Fund expects to be at the forefront of efforts to develop coverages that make it easier to be green.