Tapping Into Energy

Collage with a wind mill, transmission lines and a light bulb.

New technologies and procedures that use energy more efficiently or supply renewable energy offer a largely untapped path to achieving risk-management objectives.

by Edward Vine, Evan Mills and Allan Chen
(Illustration by Geraldine Giordano)

Seventy-eight technologies and techniques that can help reduce insurance losses and manage risks have been identified in a study conducted by the Environmental Energy Technologies division of Ernest Orlando Lawrence Berkeley National Laboratory. The most common physical perils addressed were power failures, fire and wind damage and home or workplace indoor, air-quality hazards. These energy-efficient and renewable-energy technologies and services were found to benefit 13 commercial insurance lines and two personal lines. The commercial lines that most likely would benefit by reduced loss potential include comprehensive general liability, commercial property, business and service interruption and workers' compensation. The personal lines that could benefit from these technologies include homeowners and life/health.

Some insurers including Zurich-American Insurance Group and Chubb Group of Insurance Cos., have begun to offer premium reductions to coax insureds into implementing some of these technologies. As major real estate owners, insurers could also reduce internal risks by adopting

these technologies.

Begin at the Beginning

One of the best ways to avoid mechanical breakdowns is to ensure equipment is designed and installed in compliance with existing standards or guidelines. Attention to such issues also tends to enhance energy efficiency. Once a building has been constructed and the equipment is operating, integrated information technologies assure building performance.

Key integrated information technologies include energy management and control systems, building commissioning, architectural and infrastructure surety, and measurement and verification protocols. Energy Management and Control Systems control energy use and building comfort and can be used to optimize energy use and the productivity of employees in commercial buildings. Building commissioning tests and calibrates a building's energy-service systems. Architectural and infrastructure surety helps avoid mechanical breakdowns. Measurement and verification protocols provide a uniform method of determining how much energy is saved by energy-efficiency measures.

Energy-efficient and renewable-energy technologies offer other tools that can help reduce such losses. For example, some insurers use infrared thermography to detect leaks in refrigeration systems.

Reducing Interruptions

Several technologies can help reduce business-interruption losses:

  • Explosion-prevention technologies can eliminate the need to coat sensitive surfaces, reducing manufacturing costs. These technologies can prevent property damage and avoid business interruptions.
  • Energy-efficient ultraviolet water purification can produce emergency potable water during disaster situations, allowing businesses to continue to operate.
  • Refractories in glass-production furnaces can extend the life and minimize the down time for these furnaces.
  • The reduction of cracking in recovery boilers in pulp and paper mills also will maximize the service life and minimize downtime.

Energy-efficient technologies operate more effectively under minimum power conditions, reducing the negative impact of business and service interruptions. For example, light-colored roofs reduce air-conditioning requirements during peak power periods, lessening the risk of power failures. Similarly, cool storage systems shift the cooling load of a building to off-peak periods during the day. If a building's chiller or refrigeration system fails, the storage system could provide more than 12 hours of air conditioning without chiller operation, providing time for repairs or alternative cooling arrangements to be completed, thus avoiding losses.

Other energy-efficient technologies that can reduce the potential for loss include wind-resistant building envelopes, durable roof coating materials and efficient motors. For example, halogen floor lamps are extremely energy intensive and operate at very high temperatures, creating a significant fire hazard. They have been the source of 350 reported house fires, 30 deaths and 114 nonfatal injuries in recent years. An additional 100 fires occurred at U.S. colleges and universities in 1996 and 1997. A safer, energy-efficient replacement torchiere is now available and consumes only 60 to 80 watts, compared with 300 watts for the older models. It provides the same amount of light output and operates at significantly lower temperatures—100 degrees Fahrenheit compared to more than 1, 000 degrees Fahrenheit—virtually eliminating the fire hazard.

Renewable energy technologies can provide emergency power. For example, fuel cells can convert the chemical energy of nonpetroleum fuels to electricity with little or no pollution and with greater efficiency than heat engines and can provide this power continuously and reliably. Solar heating and cooling technologies also reduce a building's reliance on the power grid, reducing the impact of business interruptions during power outages. Grid-independent solar electric cells are already widely used to support traffic lighting, communications and other critical services during natural disasters.

Other power providers include flywheel storage, fuel cells, advanced batteries, parabolic troughs for solar electric power, and—where available and appropriate—wind, geothermal, and biomass.

Environmental Liability

Several energy-efficiency technologies and services help reduce environmental liability risks. Replacing oil-filled transformers with superconducting transformers can reduce liability concerns with oil handling and leakage. Replacing chlorofluorocarbons with advanced thermal insulation, such as evacuated panel superinsulations and non-HCFC-blown plastic foam insulation, also can reduce potential liability claims.

Workers' Comp Concerns

Many energy-efficiency technologies and services help reduce workers' comp claims by providing a healthy, comfortable indoor environment. For example, a lightweight vest intended for workers in spray booths and walk-in fume hoods reduces a worker's exposure to paint and chemical fumes and should result in fewer workers' comp and health insurance claims.

Insurers Involved

Insurers have demonstrated the largely untapped value of energy efficiency and renewable energy to the insurance and risk-management communities through several initiatives. Among them:

  • USAA Group, San Antonio, published an extensive guide to energy conservation for homeowners, providing basic information on energy-saving measures, a simple home energy audit procedure, and a tool for computing cost-effectiveness.
  • Arkwright Mutual Insurance Group, Waltham, Mass., has promoted the risk-prevention benefits of compact fluorescent torchiere light fixtures.
  • The National Association of Independent Insurers and the National Renewable Energy Laboratory have recently collaborated to evaluate the potential for solar photovoltaic cells as a risk-management tool during natural disaster recovery situations.

Financial Incentives

The soft insurance market makes it extremely difficult for insurers to offer premium reductions as an incentive to implement risk management. However, some are being offered:

  • Design Professionals Insurance Co., Hartford, Conn., offers a one-time premium credit of 10% to architects and engineers who receive commissioning training. The credit, which applies to their professional liability policies, is based on a closed-claims study conducted by the insurer that examined the role that building commissioning can play in pre-empting physical conditions that lead to claims against their insureds.
  • Zurich-American Insurance Group, Schaumburg, Ill., offers specialized insurance policies for third-party energy-service companies that implement energy-efficiency technologies in exchange for a share of the savings. The policies protect installers or building owners against underachievement of contracted energy-savings targets, and thus help reduce business risks for this emerging service industry.
  • Chubb Group of Insurance Cos., Warren, N.J., has avoided claims by using infrared cameras to detect electrical and other risks. Some of the risks identified also correlate with energy inefficiencies, such as refrigerant leakage, water damage to roofs, eroded insulation in steelmaking furnaces and ruptured underground district heating lines.

Research and Development

Insurance-related research and development organizations such as the Factory Mutual Research Corp. and Underwriters Laboratory demonstrate insurers' historic role in technology assessment and research and development. With a few modest exceptions, though, the resources of these organizations have yet to be focused squarely on the opportunities for combined energy and risk management.

An early example of insurer partnerships in government energy research and development is a Cooperative Research and Development Agreement between various elements of the U.S. insurance and roofing industries and the U.S. Department of Energy's Oak Ridge National Laboratory. The private partner is the Roofing Industry Committee on Wind Issues, which includes all major roofing trade associations in North America and various insurance partners, such as the Institute for Business and Home Safety, State Farm Group and Chubb. The aim of this cost-shared project is to analyze mechanisms of roof failure during severe windstorms and to identify specific ways in which energy-efficiency detailing can also enhance roof structural integrity in the face of such storms.

More recently, the Institute for Business and Home Safety has partnered with the U.S. Department of Energy to develop and deploy an extremely low-energy ultraviolet water disinfection system. The design is based on UV Waterworks, which utilizes small ultraviolet lamps to disinfect the water. It will be manufactured by WaterHealth International and can be operated with solar photovoltaic cells when grid-based power is unavailable.

In-house Energy Management

The insurance industry is one of the biggest owners of real estate in the world. Our survey of the world's 10 largest insurance companies identified real-estate assets amounting to $105 billion. The total floor area of these buildings is an estimated 1 billion square feet, corresponding to an annual energy cost of $1.6 billion. Many insurers operate in-house energy-management programs, with varying degrees of effort.

As large real estate owners, insurers also tend to purchase enormous volumes of energy-using equipment. Several European insurance companies—including Delta Lloyd Verzekeringsgroup NV, General Accident plc, Independent Assurance, and Prudential Assurance—are collaborating with the International Energy Agency to harness the purchasing power of large building owners to create new markets for energy-efficient photocopiers. U.S. insurers are beginning to look at the benefits of participating in the government's voluntary energy savings programs, such as Rebuild America and Energy Star. Given the scale of insurer real-estate ownership, the industry has an unparalleled opportunity to display leadership by example in the field of energy management.

Allan Chen is an energy analyst, Edward Vine is a staff scientist and Evan Mills is a staff scientist and assistant director of the Environmental Energy Technologies Division, Ernest Orlando Lawrence Berkeley National Laboratory, Berkeley, Calif.

This work was sponsored by the Office for Energy Efficiency and Renewable Energy of the U.S. Department of Energy and by the Atmospheric Pollution Prevention Division of the U.S. Environmental Protection Agency.

Source: Best's Review, May 1999

A.M. Best: The Insurance Information Source

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