By Erin Kempster

Today, I want to talk to you about insurance. And healthcare. And policy. Oh, and energy, too. Because the impacts of the ways we live, work, eat, and get around don’t respect industry distinctions. I work in the energy industry; she works in healthcare; they are an insurance agent. We have our organizations, networks, and conferences. Even with LinkedIn, it’s still too easy to fall into an industry-specific echo chamber. But the climate certainly doesn’t give a toot about our industry distinctions. Why, then, in the face of an increasingly dire climate crisis, should we?

The US Government Takes a Big Swing at Decarbonization

Many climate-minded states and territories have long pursued behavior and market change via mechanisms such as rebate-based energy efficiency upgrades. Despite years of effort and promising results, a shift to less carbon-intensive building operations aligned with long-term climate goals as standard practice (i.e., complete market transformation) has proven elusive. The heat pump market is a particularly relevant example. Despite incentivization programs introduced over a decade ago, adoption of heat pumps in the US has been slow. (For insights into heat pump market transformation efforts, check out Lessons Learned from Mature Heat Pump Programs drawn from a Heat Pump Market Characterization Study conducted by Opinion Dynamics.) Transitioning all building systems to lower-carbon options will require funding an order of magnitude or more beyond what will likely be achieved by government or utility rebates and grants alone.

A market theory of change worth considering is that of shrinking the challenge and more quickly crossing the chasm from early adoption to mass market standard practice by leveraging all value streams at our disposal from across the economy. This approach can help to reduce the risks associated with new technologies and provides incentives from many sectors beyond the traditional energy marketplace. Inflation Reduction Act funding can help accelerate these efforts. In fact, the DOE guidance for the Home Energy Rebates programs (Home Efficiency Rebates, or HER, and Home Electrification and Appliance Rebates, or HEAR) identifies market transformation as a long-term goal.

To that end, states are required to create a market transformation plan within a year of Home Energy Rebates program funding awards and are encouraged to conduct a market transformation evaluation complementary to the national market transformation evaluation that DOE will conduct. DOE provides guidance for such plans and emphasizes the role of non-rebate-based value streams, including financing, demand management, virtual power plants, and home energy scores for use during real estate transactions. Beyond these examples, mostly rooted within the energy sector, there are more levers states can ply to help move home energy equipment and upgrade markets beyond reliance on incentives and toward standard practice. What could a whole-of-economy solution look like? That’s a question for a much longer paper—but a few promising examples might help show the way.

Insurance Enters the Group Chat

Most of the chatter connecting climate change to the insurance industry focuses on catastrophic loss due to natural disasters and how the insurance industry is changing practices to reflect this more disaster-prone world. Far less prominent in the discourse is a discussion about how the insurance and energy industries might join hands to encourage actions that help prevent the worsening of climate change impacts. But New York is breaking new ground in this area.

The New York State Energy Research and Development Authority (NYSERDA) committed $6.5 million to the development of “new insurance products that will increase the deployment and adoption of climate technology […]  while promoting novel business models, commercial service or product offerings, and tools that enable scaling of climate solutions through customer acquisition or increased capital flows.” (States interested in replicating this program can view the opportunity notice here).

The nonprofit organization selected to implement this funding, InnSure, is set to launch the innovation prize in early 2024. I sat down with its founder, Charlie Sidoti, to dig in on what he sees as the main blockers and biggest needs to align the insurance and energy industries around climate change mitigation. It turns out a lot is going on, and even more is left to be done. While InnSure is implementing NYSERDA’s program, there is growing recognition across a broader spectrum of experts that the insurance and energy industries can serve as force multipliers. For example, a study published in 2020 noted that insurance industry players “constitute 12 of the 26 members of the United Nations-convened Net-Zero Asset Owners Alliance, a coalition of institutional investors with $4.6 trillion under management that are committed to making their portfolios carbon neutral by 2050.”

In the context of the market transformation plans required for Home Energy Rebate program funding, states can use their levers of influence and funding resources to support (1) broader awareness about ways the clean energy and insurance industries can instigate a virtuous perpetual feedback loop and (2) connection between the key stakeholders who can bring that vision to fruition. State-level funding can provide the accelerant to launch such mutually reinforcing systems into orbit.

Charlie pointed out that the insurance industry has focused more on innovating legal wording in insurance contracts than innovating risk-reducing solutions that mitigate losses, whereas in the past, it was the opposite. The industry was there at the 1893 World’s Columbian Exposition (or World’s Fair) in Chicago when William Henry Merrill, Jr., an electrical inspector at the World’s Fair, crossed industry boundaries to chat up insurance underwriters, which led to the foundation of Underwriters Laboratories. The point at that time was to figure out how to reduce fires and injuries caused by electricity so that the risk posed by electricity could be easily insured. In 1893, the World’s Fair brought the two industries together; today, government funding can catalyze the insurance and energy industries to cross-pollinate again. Specifically, state market transformation plans can incorporate objectives such as (1) facilitating convening between industries, (2) sponsoring an innovation prize structure, and (3) leading by action and example.

Facilitate Convening Between Industries

As states consider how they can best optimize the unprecedented, but not market-transforming, funds made available by the HER and HEAR programs, they can look to such early efforts and consortia like InnSure Corps for inspiration. Launched at Climate Week in New York this year, the nonprofit organization is working to provide a bridge between the insurance and energy industries. States inclined towards crossing industry chasms in pursuit of climate solutions may wish to convene practitioners from across various fields such as real estate and finance (as envisioned in DOE’s market transformation guidance), insurance, healthcare (as discussed below), and beyond to identify key alignments and barriers to harmonization. Where no obvious profit motive exists for industries to convene themselves in this manner, the government can play a key facilitative role.

Take a Page Out of New York’s Book: Sponsor an Innovation Prize Structure

Adoption of new insurance product offerings, just like adoption of the efficient and electrified equipment subject to HER and HEAR funding, needs to follow S curves to achieve market transformation. Therefore, states like New York, looking to facilitate the spread of “new insurance products that will increase the deployment and adoption of climate technology,” may wish to articulate such aspirations in their market transformation plans.

In 2018, the Geneva Association found that companies are beginning to offer specialized products such as “green buildings” insurance and renewable and clean energy products. In cases where a clean energy technology is proven but the revenue potential is not, the insurance industry can provide a performance guarantee. The insurance industry has a unique capability for risk modeling, and insurance is generally required for an energy project to be greenlit. In essence, the insurance industry could develop a risk model that creates a floor for revenue, which can then be backed up with an insurance product that is, in turn, backed by reinsurance. (An overview of reinsurance and how that industry considers risk can be found here.)

Ideally, this unlocks financing by reducing the risk of the technology or project. Sometimes, this thinking doesn’t require a huge cognitive leap for insurance entities. For example, the insurance industry doesn’t offer a product for green geothermal; however, insuring oil and gas exploration is widely accepted. If we can demonstrate the technological similarities between traditional drilling and green geothermal energy production, the perception of the latter being a new and risky venture can be reduced. This can be achieved through government funding or other means. Once this is done, a new insurance product can be introduced that would be more acceptable to the insurance industry. This need is also articulated in a Building Decarbonization Coalition (BDC) and Green and Healthy Homes Initiative (GHHI) white paper on means to leverage IRA funding by working with the end in mind and helping derisk projects.

As states pursue innovation prize structures like New York’s, they may wish to take another page from New York and from California’s playbooks by ensuring the dissemination of learnings. Opinion Dynamics is leading the measurement, evaluation, and learning component of NYSERDA’s Clean Transportation Prize and of the Technology and Equipment for Clean Heating (TECH) Initiative in California. A key component of each is to share best practices and lessons learned with the broader community. The results and resources will be shared via online platforms for public consumption. Additionally,  a set of playbooks and toolkits will be developed to disseminate key learnings, document best practices, and support the process of determining project replicability.

Lead by Doing: Contracting Only with Insurers that Maintain a Low- or No-Carbon Asset Management Portfolio

In the spirit of cross-pollination, asset management of the funds paid into long term insurance policies like life insurance can play a key role in furthering clean energy activity.  Currently, asset management companies will invest in industries such as real estate even though such industries might be considered high-risk by those same companies for insurance purposes. If managed assets were invested in decarbonization initiatives, those insurance entities would experience a kind of “second return” because the funds would go toward activities that reduce the risk of the things they insure.  There is evidence that reinsurance companies are thinking about this; committing to net-zero asset portfolios backing life insurance liabilities is a concrete step that would further market transformation. The appeal of shifting portfolios in such a manner may increase if it were to become a prerequisite for doing business with state agencies.

Health and Energy: Going Beyond Lead

Speaking of health and life insurance, let‘s pause there for a moment. If insurance industry investment into initiatives that increase human health and longevity can create second returns for that industry, how might states plug in to supercharge those efforts?

There are positive steps that can point the way forward.

In 2021, private sector funding of lead remediation became a reality in Pennsylvania when LG Health launched the “Lead-Free Families Initiative.” This initiative focused on Lancaster County, where data have shown  “one of the highest rates of elevated blood lead levels in Pennsylvania.” Meanwhile, GHHI has worked in at least five other states to “achieve reimbursement from healthcare for healthy homes services.”

To address the question of how to help bridge the divide between health and energy industries, I spoke with Rewiring America’s Jamal Lewis, Director of State and Local Policy for Mid-Atlantic and South, and former Director of Energy, Health, and Climate at GHHI. According to Jamal, a few key challenges stand in the way of a clear connection between clean energy investments, improved health outcomes and, theoretically, increased investment yields. States can address each in their market transformation plans.

Data

If a tree falls in a forest, does it make a sound? And if a vulnerable person suffers health impacts of particulate matter but is underserved by healthcare, does their suffering get counted?

The purported benefit for healthcare of improved health outcomes is reducing the cost of care. But unfortunately, there are people who get sick but don’t actually seek healthcare. Until healthcare covers the entirety of a population to the full extent of its need, the value proposition for a healthcare system to provide a universal benefit aimed at improving health outcomes just may not be there. Lead use and exposure is regulated and health institutions are required to test children, but not every health impact of unhealthy living conditions enjoys a similar legal framework. Therefore, surfacing more information on who is and is not served can enable policymakers to determine ways to increase that coverage and make plain the value of improving health outcomes for everyone.

In the BDC and GHHI white paper, the two organizations advocate for the establishment of data hubs to enable market transformation.  In their words, “[c]ollecting and making data public through program implementation can not only provide transparency to the market and drive down costs, but it can also help inform analyses that can justify high-leverage policies.”  Breaking silos between energy and health data repositories may increase accessibility and help draw stronger connections between the industries.  Means by which to increase data transparency, access, and connections between agencies may be a valuable market transformation plan component.

Evidence and Attribution:

There have been strides in research connecting health outcomes to housing improvements, but studies on internal health primarily focus on the linkage between lead and lead poisoning, and indoor air pollution and asthma. Additional research is needed to determine whether there is a clear linkage between indoor and outdoor clean energy efforts and positive health outcomes. Lead poisoning clearly names its cause (hint, it’s lead) whereas other health issues may be tougher to pin down. Attribution of health outcomes improvement to a specific intervention can be difficult to ascertain and likely just as difficult to convey in economic terms.

Some academic centers (see a Harvard T.H. Chan School of Public Health-affiliated study here), states, and their resident utilities have begun this type of investigation. Opinion Dynamics evaluated the electric and gas savings from Ameren Illinois Company’s (AIC’s) 2018 energy efficiency portfolio, but additionally used the EPA-developed AVoided Emissions and geneRation Tool (AVERT) and CO-Benefits Risk Assessment (COBRA) Health Impacts Screening and Mapping Tool to quantify emissions reductions and subsequent air quality improvements, and to monetize the health benefits over measure lifetimes.  That work is intended to be reproducible, transparent, and translatable to other program types such as transportation and renewable energy (Full report is available here).

The study found that health benefits of AIC’s 2018 energy efficiency portfolio both within Illinois’ borders and beyond amounted to between $92 and $207 million. That was for one year of one utility’s energy efficiency actions.

Imagine how much insurance and health industry attention could be captured by quantifying such benefits across all the country’s utilities, states, and territories. Yet, the challenge is not as simple as replicating the AIC study methodology. To fully engage the healthcare sector, it becomes necessary to translate those findings into results that incorporate the healthcare industry’s own valuation methodologies. It is within state legislative or regulatory authority to assist with such efforts as part of a market transformation plan.

Putting It All Together

As we move forward, we can celebrate the signifiers of greater collaboration between industries.  We only have to look to the 28th UN Climate Conference (COP28). On December 6, 2023, at COP28, the US DOE and Housing and Urban Development (HUD) agencies announced a new partnership focused on building sector decarbonization. Deputy Secretary of the US Department of Energy David Turk in his introductory remarks to a forum on Unlocking Innovation and Investment for the Clean Energy Transition at COP28 the previous day remarked that “it’s the private sector that’s gonna get this done.”

States can heed the call for collaboration and reflect back this ambition in their own market transformation plans.

Onward!