The American Recovery and Reinvestment Act of 2009, or the Stimulus Package, is the largest infusion of government funds into the private sector in history. Even though it does not include direct benefits to the insurance industry, it includes provisions that will impact insurance customers in fundamental ways. The package is the first step in defining the priorities of the new administration, setting a direction that will have a financial and risk management impact on all Americans. Forward looking agents can and will recognize the opportunities and new ways of thinking about risk that this new direction offers.
There are five significant areas — five reasons to pay attention:
Investment in Energy Retrofits
Nearly $16 billion will flow to energy retrofit projects. Energy Secretary Steven Chu is on record saying he wants this money to be spent in the next 18 months. Not only will retrofits stimulate the home improvement industry, they will have a marked impact on energy use. It is cheaper to conserve than to build new power plants. Some insurance companies are ahead of this curve, having launched green building insurance products and consulting services. Many agents have already recognized that energy costs are a financial risk that can be managed through the right insurance program. Reduced energy costs translate quickly to a stronger bottom line for business and more disposable income for citizens. Agents who help their customers find insurance solutions to energy efficiency have dramatically changed the total cost of risk.
Investment in Alternative Energy Generation
Again, nearly $16 billion will be used to incent investment in wind and solar, spur research and development (R&D) for new forms of alternative energy (biomass, biofuels, lithium ion batteries) and research carbon sequestration technologies. This investment will impact multi-scale manufacturing, construction and operation of alternative energy facilities, mostly in the private sector. New projects and new technologies create new risks that the insurance industry must be ready to understand and manage. Agents who pay attention and develop expertise will be very well positioned to be impactful in this fluid landscape. Much like the high tech revolution, the R&D expenditures will produce rapid changes in technology and risk. Trusted advisors who can help their customers manage these new risks will be big winners.
Investment in the Grid
Today’s electrical grid is a mess. It is essentially a patchwork of different systems that exposes Americans to significant financial risk. The Electric Power Research Institute estimates that power outages cost Americans more than $100 billion per year. Most are uninsured. Insurance Information Institute estimates that 85 percent to 90 percent of U.S. businesses are not insured against power failure. The $11 billion in the stimulus package for smart meters is probably just the down payment. Dr. Daniel Kamman of Lawrence Berkeley National Labs, and an Obama advisor, estimates the final cost to modernize the grid could exceed $400 billion. In our role as risk managers, we need to advocate for a reliable grid.
Private Investment Will Follow Government Dollars
We are already seeing venture capital flowing to energy-related investments. The long term returns are attractive, and the reasons to invest are compelling. It’s probably no surprise that T. Boone Pickens and a group of Minnesota investors are planning a major new facility to produce better, stronger blades for wind turbines. Silicon Valley, Calif., has retooled to manufacture solar panels. The United States is full of unused manufacturing facilities, and the green jobs fever is just catching on. Consider how quickly American industry retrofitted itself to make tanks and bombers in the early 1940s. The risk challenges and insurance opportunities are already here.
The Feds Are Late to the Party
For the past several years, state and local governments have carried the ball when it comes to these investments in energy and energy efficiency. Western and New England states have implemented carbon cap and trade legislation. California and at least 10 other states allow local government to finance energy retrofits (including solar) through property tax loans and liens. Most major cities have enacted building codes that require new construction (and rehabs) to conform to LEED (Leadership in Energy and Environmental Design) standards. Some insurance companies and many agents have already recognized how these developments impact risk and our ability to professionally serve our customers.
The (high speed) train is just about ready to leave the station. Agents with an eye to the risks and opportunities of the future are on board. Are you?
Bushnell is senior director of Emerging Industries, Commercial Insurance for Fireman’s Fund Insurance Co. based in Novato, Calif.
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