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We’ve all heard about climate change and its sweeping global effects—from stronger hurricanes to unpredictable weather patterns and rising sea levels. But what we often overlook is the significant role climate change plays when it comes to risk and insurance.

More extreme weather events mean higher risks, whether it’s flooding, wildfires, or storm damage. In fact, insured losses from natural disasters reached $60 billion in just the first half of 2024.

Unlike other types of claims, which occur individually or sporadically, natural disaster claims often impact large numbers of people simultaneously, thus requiring quick settlements on a massive scale.

As the world shifts toward low-carbon economies, the insurance industry is rolling out eco-friendly policies to meet both climate and consumer demands. This is where green insurance comes in. But what exactly is green insurance, and why should it matter to you?

What is green insurance?

Green insurance refers to a type of coverage that not only protects policyholders from traditional risks like damage to property or injury but also encourages eco-friendly practices. Think of it as the insurance industry’s way of addressing the environmental impact of our choices while still doing its core job—managing risk.

And here’s a trend worth noting: 80% of insurance companies in the US now consider climate-related risks when setting premiums, according to the National Association of Insurance Commissioners (NAIC). This means that more insurers are looking at ways to reward eco-friendly behaviors in their policies.

In essence, green insurance offers the same protection as standard policies, but with added benefits that promote an eco-friendly lifestyle. These benefits are what we call green practices and can take many forms.

For instance, some insurers now offer Pay-as-You-Drive (PAYD) or Usage-Based Insurance (UBI) programs. These programs operate on the principle that reduced driving lowers accident risks and decreases environmental impact. To support this, a sensor is installed in the vehicle to monitor the miles driven. As drivers log fewer miles, they become eligible for insurance discounts.

Common green insurance products

Let’s dive into how green insurance applies to some of the most common types of policies:

• Auto insurance

Insurers are offering special discounts, or coverage benefits for policyholders who drive hybrid or electric vehicles. Not only is this a win for the planet, but it’s also easy on your wallet.

The global market for Electric & Hybrid cars is projected to expand at a growth rate of 15.6% by 2030. Some insurers even go a step further by paying for carbon offsets, meaning they’ll invest in environmental projects to counterbalance your vehicle’s emissions.

• Homeowners insurance

Homes that incorporate energy-efficient materials, solar panels, or sustainable building techniques are benefiting from lower insurance premiums. In the event of damage, green insurance may also cover the cost of rebuilding using environmentally friendly materials.

Homeowners who generate their own power through geothermal, solar, or wind energy can now find policies that cover additional costs during power outages, like temporarily buying electricity from another source.

• Business insurance

For businesses, adopting green practices—like utilizing renewable energy or meeting LEED (Leadership in Energy and Environmental Design) standards—can result in substantial cost savings.

These efforts not only help reduce their environmental impact but also make them eligible for specialized coverage options under green insurance policies.

Bottom line

Green insurance offers a range of benefits, from saving you money—like 20% off premiums for driving an electric vehicle—to reducing your carbon footprint. By opting for policies that promote eco-friendly practices, you’re taking an active role in combating climate change, where cutting emissions is crucial.

Green insurance often includes benefits like covering energy-efficient upgrades for homes or businesses and ensuring that rebuilding after damage is done sustainably. It also features programs like Usage-Based Insurance (UBI) and Environmental Liability Insurance (ELI), which cover the costs of restoring polluted areas and protecting biodiversity.

And with climate change on the rise, green insurance gives you added peace of mind as we face more frequent and intense natural disasters