Does the insurance industry have a responsibility to help reduce the effects of global warming? People will probably answer this in the affirmative. Some recent suggestions include insurance price reductions for hybrid cars and for “green” buildings.
Should people who drive hybrids get a insurance price reduction?
Should companies which build new green buildings get a price reduction on their coverage?
The answer is yes if hybrid drivers are lower risk drivers (and the cars have a favorable accident loss record) and green buildings are less likely to burn down, blow down, or get knocked down by earth quakes than other buildings.
Insurers are in the business of risk financing and automobiles and building insurance are truly short term risk transfers. People might claim that hybrids and green buildings will lower the buildup of green house gases and in the long run it will reduce global warming. However, the question is whether an investor in a company who provides a discount for drivers of hybrids can earn return on his money commensurate with the risk? Let’s say an investor takes a long term approach to investing and invests for 30 years. Would the investor make a profit on the investment if the insurer gives discounts to hybrid drivers assuming there is no difference in driving capabilities of hybrid owners and non-hybrid owners? Even if there is a link between auto emissions and greenhouse gases, can we count on investors to solve this problem through the insurance mechanism? I am not optimistic.
There are probably other things the industry can do to help inform people about risks, but the incentives provided by insurance contracts are not likely to be a solution to the global warming problem. Insurers will have a bigger effect on risk reduction if they are allowed to exclude certain kinds of coverage or price the coverage to the level they think is proper. This will slow or stop growth in desirable (except for the odd hurricane) parts of the country. This by itself will help reduce risks more directly than any green discounts would.