# Presentation: 700735

## HOW THE INSURANCE INDUSTRY

**CAN PROMOTE**
** ****BUILDING ENERGY CODES**

## OR

## IN GOD WE TRUST

**ALL OTHERS BRING DATA**

## Center for Business and Economic Research

**Presented by**

_**C**_**enter for **_**B**_**usiness and **_**E**_**conomic **_**R**_**esearch**

**at**

**Louisiana State University in Shreveport**

## PROJECT REVIEWS

**- Iowa Project**

**- Louisiana Project**

## IOWA PROJECT

**Phase IV of the **
**Iowa Building Energy Code Education (BECE) Program**

**Educate the insurance industry on how building energy code **
**      ****compliance may lead to reduced health and property risks, **
**      ****claims and losses**

**Encourage the insurance industry to offer premium reduction **
**       ****incentives for clients that comply with building energy codes**

**GOALS AND OBJECTIVES**

## IOWA PROJECT

**Scope of Work**

**1. Establish an Advisory Committee to provide guidance and direction**

**2. Develop educational materials including a greenhouse gas (GHG) **
**    ****primer (which wording was changed to greenhouse gas **_**guide**_** at the **
**    ****recommendation of the Advisory Committee).**

**3. Anticipate changes and benefits to the insurance industry and others **
**    ****from their implementation of the proposed programs.**

## IOWA PROJECT

**Scope of Work**

**4. Conduct a GHG focus group meeting**

**5. Conduct small group meetings**

**6. Make a presentation at a regional insurance forum/meeting**

## IOWA PROJECT

**REVIEW OF SCOPE OF WORK**

**1. Advisory Committee**

**Reviewed and provided editing comments during the development of **
**	****the educational materials**

**     ****Made presentations at the small group and regional group meetings**

**     ****Made recommendations for revising the project as originally designed.**

**     ****Recommended additional members for the advisory group and also**
**      ****recommended members for the focus group meetings.**

## IOWA PROJECT

**REVIEW OF SCOPE OF WORK**

**2. Develop educational materials including a Greenhouse Gas (GHG) **
**    ****Primer**

**At the recommendation of the Advisory Committee, the title **
**      ****Greenhouse Gas **_***PRIMER***_** was changed to Greenhouse Gas **_***GUIDE***_

**     ****Prepared handouts from the Power Point presentation**

**     ****Wrote the Guide, the PowerPoint presentation and the handouts to CD**

**     ****Created a Power Point presentation from the GHG Guide**

**    ****Printed 650 Greenhouse Gas Guides for the Insurance industry**

## IOWA PROJECT

**REVIEW OF SCOPE OF WORK**

**3. Anticipate changes and benefits to the insurance industry and others **
**    ****from their implementation of the proposed programs.**

**    ****With the implementation of the programs presented through this project, **
**     ****the insurance industry should see reduced health, life, and property **
**     ****claims.  **

**   ****Building energy codes will not only conserve energy usage, they will **
**      ****also reduce and/or eliminate serious health and property risks, claims **
**      ****and losses.  **

## IOWA PROJECT

**REVIEW OF SCOPE OF WORK**

**3. Anticipate changes and benefits to the insurance industry and others **
**    ****from their implementation of the proposed programs.**

**    ****The residents of the state of Iowa should see reduced or **
**     ****eliminated instances of health and life threatening illnesses.  **

**    ****The state of Iowa should be able to hold itself as an example to the **
**     ****country with regard to its serious intentions to protect the health and **
**     ****property of its citizens, and its serious intentions to protect the **
**     ****environment.**

## IOWA PROJECT

**REVIEW OF SCOPE OF WORK**

**4. Conduct a GHG focus group meeting**

**   ****Objectives**

** ****-  Access current knowledge base of Iowa insurance industry relative **
**    ****to the predicted detrimental effects of global climate change in Iowa**

**  ****Assess Iowa insurance industry’s level of concern over increased**
**   ****building loss claims associated with global climate change**

**  ****Assess willingness and ability of Iowa insurance industry to offer rate**
**   ****incentives to encourage building energy code adoption and enforcement**

## IOWA PROJECT

**REVIEW OF SCOPE OF WORK**

**4. Conduct a GHG focus group meeting**

**   ****Objectives**

**  ****Identify other areas Iowa insurance industry may be willing to work with**
**   ****DNR to encourage building energy code adoption and enforcement.**

**  ****Identify potential barriers to Iowa insurance industry cooperation with **
**   ****DNR in promoting building energy codes**

## IOWA PROJECT

**REVIEW OF SCOPE OF WORK**

**4. Conduct a GHG focus group meeting**

**   ****Objectives**

**  ****Assist DNR in developing strategies to promote building energy codes**
**   ****within the Iowa insurance industry**

**  ****Identify key individuals within the Iowa insurance industry whose **
**   ****participation is critical to obtaining insurance industry participation in **
**   ****promoting building energy codes**

## IOWA PROJECT

**REVIEW OF SCOPE OF WORK**

**4. Conduct a GHG focus group meeting**

**   ****Major findings**

**  ****No participant could recall the issue of global climate change ever being**
**   ****discussed within their respective companies**

**  ****Insurance rate incentives for building energy code adoption are not**
**   ****easy to adopt**

**-  Lack of actuarial data linking energy codes to loss reduction**
**--  Rate changes are state regulated**
**--  Iowa insurance rates are already low compared to other states**

## IOWA PROJECT

**REVIEW OF SCOPE OF WORK**

**4. Conduct a GHG focus group meeting**

**   ****Major findings**

**  ****Energy code adoption should be tied to building code enforcement **
**   ****that stresses structural and safety issues along with energy efficiency**

**  ****Play down the greenhouse gas issue and play up the energy **
**    ****conservation issue**

**   ****Support for building code  adoption and enforcement in general was **
**    ****already high**

## IOWA PROJECT

**REVIEW OF SCOPE OF WORK**

**4. Conduct a GHG focus group meeting**

**   ****Major findings**

**  ****Have another focus group with more insurance management**
**   ****representation**

**   ****Have representation from the Insurance Division of the DOC.  DNR**
**    ****involvement with the insurance industry is unusual **

**  ****Serve food and they will come**

## IOWA PROJECT

**REVIEW OF SCOPE OF WORK**

**5. And 6. Conduct small group meetings and one regional meeting**

**   ****Objectives**

**  ****Conduct the Power Point presentation to 25 to 50 attendees per meeting  **

**  ****Distribute the GHG Guide to attendees, with the handout and the CD**

**  ****Have a round table discussion during the lunch after the presentation**

**- Send invitations to all 243 insurance companies in Iowa**

**- Send invitations to actuaries listed in the Iowa Actuarial Society**

## IOWA PROJECT

**REVIEW OF SCOPE OF WORK**

**5. And 6. Conduct small group meetings and one regional meeting**

**   ****Major findings**

**  ****The topic did not generate much interest in the 243 insurance companies **

**  ****Participants were receptive to the message presented by DNR**

**-  first small group meeting was held during a luncheon at a Women in **
**    ****Insurance monthly meeting – 26 people attended**
**-  Eight people attended the second small group meeting**
**--  Seven attended the regional group meeting**
**--  Four people attended the second focus group/third small group meeting**
**--  All meetings were held in the Des Moines area**

**  ****Participants recommended making the presentation on site at insurance **
**   ****companies **

## LOUISIANA  PROJECT

**Building Energy Codes and Property Insurance Reduction**

**Identify and quantify the links between building energy **
**codes and property loss due to natural disasters**

**GOALS AND OBJECTIVES**

## LOUISIANA PROJECT

**Methodology**

_**Secondary research**_** involved a literature search to identify research **
**      ****done throughout the country, and internationally, on insurance claims **
**      ****from property damage due to natural disasters relative to building **
**      ****energy code compliance**

_**Primary research**_** *****originally***** involved a mail survey of all insurance **
**      ****claims offices in Louisiana.  The mail survey was designed to identify **
**      ****the dollar amount of insurance payments related to building energy **
**      ****code issues and natural disasters in Louisiana in the years **
**      ****1992 - Hurricane Andrew, **
**      ****1994 - major ice storm, and **
**      ****1999 - no significant natural disaster. **

## LOUISIANA PROJECT

**During a meeting with the local State Farm Claims Office manager it **
**became apparent that the intended mail survey was not a viable approach **
**for obtaining claims information pertinent to the project.  The primary **
**research methodology was, consequently, revised.**

**Revised Primary Research Methodology**

**LOUISIANA PROJECT**

## LOUISIANA PROJECT

**-  Insurance claims payments are made for specific incidences of damages, **
**   ****such as broken windows, roof damage, water damage to carpets, etc.  **

**Revised Primary Research Methodology**

**-  The cause of the wind, fire or water damage was usually well documented **
**    ****within the claim document, but not evident unless the claims document **
**    ****is examined.**

**-  The only way to determine if building energy codes had been relevant in a **
**    ****property damage claim was to physically examine individual insurance **
**    ****claims. **

**LOUISIANA PROJECT**

## LOUISIANA PROJECT

**The CBER asked the five major insurance writers in Louisiana for **
**permission for CBER staff to examine claims for 1992, 1994, and 1999.**

**Revised Primary Research Methodology**

**Allstate Insurance Company**
**State Farm**
**American International Group (AIG)**
**Farm Bureau**
**The Travelers**

**LOUISIANA PROJECT**

## LOUISIANA PROJECT

**-  **_**State Farm**_** had claims numbering in excess of 10,000 for the years in **
**   ****question, and informed the CBER that the logistics of locating the **
**   ****claims and subsequently transporting them to a common location **
**   ****was an unacceptable use of State Farm staffing time. **

**Revised Primary Research Methodology**

**  **_**Allstate**_** also declined to participate in the project due to volume and **
**   ****time constraints.**

**LOUISIANA PROJECT**

## LOUISIANA PROJECT

**Methodology**

**The detailed review of each claims record attempted to capture:**
**--****	****the specific cause of the loss,**
**--****	****the relationship to building energy codes,**
**--    the actual dollar impact and percent dollar impact of building **
**	****energy code -related loss, and**
**--    the recommendations for energy efficient replacement materials**

**Revised Primary Research Methodology**

## LOUISIANA PROJECT

**Methodology**

**The following energy code and property loss reduction areas were **
**       ****researched:**
**	****	****--    Frozen water pipes**
**--****	****Improperly installed HVAC systems **
**--    Flame rollout**
**--    Double-pane windows and insulated doors**
**--    High efficacy lighting**

**Revised Primary Research Methodology**

## LOUISIANA PROJECT

**  ****Search resources included the Internet, academic libraries, various **
**    ****publications, and interviews.**

**  ****Research links between energy codes in construction and property **
**   ****losses were identified, however, no reports, studies, or papers were **
**   ****found to quantify the link between building energy codes and property **
**   ****loss claims.**

**  ****Very little nonproprietary research on the role of energy efficiency and **
**   ****renewable energy technologies is conducted within the insurance **
**   ****industry.  Most of the research is proprietary in order to keep a **
**   ****competitive edge.**

**LOUISIANA PROJECT**

## LOUISIANA PROJECT

**  ****Relationship of Loss to Building Energy Codes**

**LOUISIANA PROJECT**

**Between 1% and 3% of claims examined were directly related to **
**Building Energy Codes.**

## Slide 31

## LOUISIANA PROJECT

**  ****Actual Dollar Impact and Percent Dollar Impact of Energy-related Loss**

**LOUISIANA PROJECT**

**--  63% of the total claims payments for property damage **_**with**_** building **
**    ****energy code-related damages were directly related to those building **
**    ****energy code-related damages.**

**--  In some instances, 100% of claims paid was a direct result of **
**    ****building energy code- related damages.**

## LOUISIANA PROJECT

**Primary Research Findings**

**  ****Actual Dollar Impact and Percent Dollar Impact of Energy-related Loss**

**LOUISIANA PROJECT**

## LOUISIANA PROJECT

**  ****Prevalence of Type of Claim**

**LOUISIANA PROJECT**

**--  In the 120 claims with damages related to building energy codes, **
**    ****window damage was the most prevalent**

**--  Some claims had damages related to more than one Building **
**     ****Energy Code.**

## LOUISIANA PROJECT

**Primary Research Findings**

**  ****Prevalence of Type of Claim**

**LOUISIANA PROJECT**

## LOUISIANA PROJECT

**  ****Recommendations For Energy Efficient Replacement Materials**

**LOUISIANA PROJECT**

**--  Claims were examined to determine whether insurers were **
**     ****recommending replacing damaged materials with energy efficient **
**     ****materials, where applicable.**

**--   In only one instance did a claim indicate that the insurer **
**     ****recommend replacement materials with greater energy efficiency **
**     ****than the damaged materials.**

## LOUISIANA PROJECT

**which damage to the original wood framed windows required the **
**windows be replaced.  **

**The insurer recommended aluminum framed insulated windows as **
**replacements.  **

**The recommendation was not accepted due to the diminished aesthetic **
**quality of the aluminum framed windows in the historic structure.**

**Primary Research Findings**

**  ****Recommendations For Energy Efficient Replacement Materials**

**LOUISIANA PROJECT**

## LOUISIANA PROJECT

**  ****The ability to determine the impact of Building Energy Code-related **
**    ****insurance claims costs is limited by the following constraints.**

**1.  The manner in which claims are coded requires the physical **
**     ****examination of individual claims in order to discover if a building **
**     ****energy code is relative to the damage reported.**

**2.  The manner in which the major insurance writers store individual **
**     ****claim data for an individual state requires travel outside the state for the **
**     ****examiner, as well as for the actual claims, in some instances**

**LOUISIANA PROJECT**

## LOUISIANA PROJECT

**  ****The ability to determine the impact of Building Energy Code-related **
**    ****insurance claims costs is limited by the following constraints.**

**LOUISIANA PROJECT**

**3.  The very large insurance writers have such a high volume of claims **
**     ****for  individual states, that it would be incredibly time consuming to **
**     ****examine enough claims to get a truly representative sample of claims **
**     ****from which to make a statistical analysis. **

**Conclusions**

## LOUISIANA PROJECT

**  ****Ability to Determine the Adequacy or Inadequacy of Existing Building **
**   ****Energy Codes as Well as Compliance with Existing Energy Codes**

**--   Secondary research findings identified serious problems with **
**     ****understanding of, and compliance with building energy codes.**

**--   Primary research findings were hampered by the inability to examine **
**     ****claims from all three years in question from each of the three **
**     ****participating companies.**

**LOUISIANA PROJECT**

## LOUISIANA PROJECT

**  ****Ability to Determine the Adequacy or Inadequacy of Existing Building **
**   ****Energy Codes as Well as Compliance with Existing Energy Codes**

**--  Primary research was also hampered by the inability to examine **
**     ****claims from State Farm and from Allstate.**

**--  These two companies combined, write over 50% of the insurance **
**     ****in Louisiana.**

**LOUISIANA PROJECT**

## LOUISIANA PROJECT

**  ****Ability to Determine the Adequacy or Inadequacy of Existing Building **
**   ****Energy Codes as Well as Compliance with Existing Energy Codes**

**--   Primary research was hampered by the way claims information **
**      ****was recorded.**

**--  There was no consistency in the type of descriptive data included **
**     ****in the claims files**

**LOUISIANA PROJECT**

## LOUISIANA PROJECT

**  ****The Ability to Evaluate the Impact of Building Energy Codes on **
**    ****Property Damage From Natural Disasters Is Limited by Several Factors.**

**--    The greatest number of claims examined came from the year 1999. **
**      ****As a result of the timing of the majority of claims examined in this **
**      ****project, it can seem that a year without a significant natural disaster **
**      ****showed more building energy code-related claims. **

**--   the manner in which claims documentation is recorded varies with **
**     ****individual claims adjusters, as well as with individual insurance **
**     ****companies.**

**LOUISIANA PROJECT**

## LOUISIANA PROJECT

**  ****The Ability to Evaluate the Impact of Building Energy Codes on **
**    ****Property Damage From Natural Disasters Is Limited by Several Factors.**

**--    Since claims adjusters do not specifically look at damages with **
**       ****building energy codes in mind, damage information pertinent to **
**       ****building energy codes can easily be left unrecorded.**

**LOUISIANA PROJECT**

## LOUISIANA PROJECT

**     ****Implementation of building energy codes is assumed to make buildings **
**not only more energy efficient, but to also make buildings more resistant **
**to damaging effects of certain natural disasters.  The link between **
**building energy codes and reduction of damages to buildings from **
**natural disasters is difficult to document. **

**     ****Education of the insurance industry into the benefits of promoting **
**building energy codes and their enforcement, can result in claims **
**recording techniques that would provide a greater ability for the insurance**
**industry to track the impact of building energy codes and to apply rate **
**structures accordingly.**

**LOUISIANA PROJECT**