Insurance and Climate Change column

Insurer Philadelphia Cos. Counts Carbon Footprint

By | December 18, 2014

It’s no secret that many property/casualty insurers are tackling climate change on the back end through more sophisticated catastrophe modeling, calls for more resilient communities and pricing.

But it seems to be a common misconception that the industry – like the rest of the financial services industry – is non-carbon-emitting, and is therefore not called upon to reduce emissions.

Insurers are on the front end too as a carbon-emitting group.

Any doubt about that can be answered positively by Philadelphia Insurance Cos.

PHLY was recently honored by the Environmental Protection Agency with an award for buying green power and reducing carbon pollution. It appears to be the only insurer to have received the EPA’s Green Power Leadership Award.

The Bala Cynwyd, Pa.-based carrier purcahses nearly 5 million kilowatthours of green power each year – the equivalent in green power to meet 100 percent of the company’s electricity use.

According to the EPA, PHLY’s annual green power use is equivalent to eliminating the carbon dioxide emissions of nearly 700 passenger vehicles per year, or the amount of electricity needed to power nearly 500 average American homes annually.

This may be hard to fathom for some, because insurers don’t fit into the typical “carbon footprint” image of other those in industries like manufacturing and transportation.

The carrier’s aggressive green power attitude comes from its parent company Tokio Marine Group, which reportedly achieved carbon neutrality in both its domestic and overseas business operations in fiscal 2013.

When company executives flew to Sacramento, Calif. to receive the EPA award on Dec. 3. during an event held in conjunction with the 2014 Renewable Energy Markets Conference – PHLY is one of only nine U.S. organizations to receive a Leadership Award for its green power purchase – other award winners present were perplexed as to why an insurer was getting an environmental award for carbon reduction, said Susan Doering, vice president and director of Tokio Marine Specialty Environmental.

“We recognize that the insurance industry does have emissions,” Doering said.

While the industry isn’t a giant manufacturer or deliverer of goods with a great need for power and fuel, insurers do need to run computers, and they must light their offices and travel near and far.

“These are things that definitely contribute to carbon emissions,” she said.

Beside being a good neighbor, and drumming up a little good PR for itself, the company’s goal of reducing carbon emissions may be a sensible one for a property insurer – in that providers of property insurance are exposed to weather risk and have an interest in reducing that risk by reducing emissions.

That’s the “every little big helps” perspective, and that’s the reasoning Doering offered as a motive for the painstaking steps the carrier needed to take to achieve its carbon offsetting goal.

“There’s some strong belief that there is a correlation between carbon in our atmosphere and increased storm intensity,” Doering said. “So we feel as an insurance company we need to reduce our carbon emissions. We do bear the brunt of losses on property where there are intense storms.”

She added, “We have seen increased losses – as has the entire insurance industry.”

Doering often deals with environmental insurance, so it’s not rare for her to deal with the impacts of increased weather intensity and environmental losses at storage companies, chemical companies and manufacturers from severe events like flooding, hurricanes, tornadoes – events that many climate scientists say are becoming more frequent.

PHLY incurred some losses due to Superstorm Sandy in 2012, an event that people often tie to climate change, but what’s really delivered a blow in the form of greater claims to the carrier has been the increased frequency of high intensity storms, icing events and generally bad weather.

“The Polar Vortex was a real problem for us,” she said, referring to the costly cold blast that gripped the Eastern Seaboard last winter.

Tornadoes and hail, particularly in Colorado, which has seen record hail losses the last few years, have also changed the way PHLY is doing and seeing things.

While speaking about the hail losses in Colorado, Doering was asked if the company still writes insurance there. She answered: “Less now.”

It may sound simple, but the task of figuring out just how much green power the company needed to offset its actual usage was daunting – and continues to be, said Thea Valero, PHLY’s environmental corporate social responsibility coordinator.

“The first step in carbon footprint reduction is actually getting a handle on what your carbon footprint is,” Valero said. “That is a lot more challenging than it sounds.”

PHLY has offices that range from three people to several hundred, and because many offices are on either net or gross leases, just how the power bill is paid varies, skewing or limiting available data.

To come to the 5 million kWh figure PHLY executives looked at the power usage in the main office, took an overall company headcount and went from there.

That’s an overly simplistic explanation.

In truth, PHLY went through a more detailed process to calculate the 5 million kWh figure, and subsequent carbon emissions associated with that figure were calculated using actual rented square footage data, carbon intensity determinations for the specific location, and estimated kWh usage based on the rented square footage.

“That’s how we determined the amount of green power that we purchased,” Valero said.

The next step in their green plan is to beef up their data by looking closely at PHLY’s dozen-plus large regional offices, and this coming year the carrier plans to expand their environmental impact reporting by gathering data on employee commutes, according to Valero.

Beyond that is finding out how much of a carbon footprint PHLY is leaving due to travel for work purposes, which both Valero and Doering described as a “huge undertaking.”

It’s huge because in some cases the carrier provides a set expense allowance for cars, plane trips and train rides, while other work-related travelers are required to hand in expense reports with mileage.

In true insurer fashion, it’s all about the data.

“Quite frankly it’s a really big undertaking for us and we’re hell-bent on doing that,” Doering said.

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