Five Reasons Agents Should Pay Attention to the Stimulus Package
Forward looking agents can and will recognize the opportunities and new ways of thinking about risk that this new direction offers.
The American Recovery and Reinvestment Act of 2009, or the Stimulus Package, is the largest infusion of government funds into the private sector in history. Even though it does not include direct benefits to the insurance industry it includes provisions that will impact insurance customers in fundamental ways. The package is the first step in defining the priorities of the new administration, setting a direction that will have a financial and risk management impact on all Americans. Forward looking agents can and will recognize the opportunities and new ways of thinking about risk that this new direction offers. There are five significant areas — five reasons to pay attention:
Investment in Energy Retrofits
Nearly $16 billion will flow to energy retrofit projects. Energy Secretary Steven Chu is on record saying he wants this money to be spent in the next 18 months. Not only will retrofits stimulate the home improvement industry, they also will affect energy use. It is cheaper to conserve than to build new plants. Some insurance companies are ahead of this curve, having launched green building insurance products and consulting services. Many agents have already recognized that energy costs are a financial risk that can be managed through the right insurance program. Reduced energy costs translate quickly to a stronger bottom line for business and more disposable income for citizens. Agents who help their customers find insurance solutions to energy efficiency dramatically change the total cost of risk.
Investment in Alternative Energy
Again, nearly $16 billion will be used to incent investment in wind and solar, spur research and development (R&D) for new forms of alternative energy (biomass, biofuels, lithium ion batteries) and research carbon sequestration technologies. This investment will impact multi-scale manufacturing, construction and operation of alternative energy facilities, mostly in the private sector. New projects and new technologies create new risks that the insurance industry must understand. Trusted advisors who develop expertise and help their customers manage these new risks will be big winners.
Investment in the Grid
Today’s electrical grid is a mess. It is essentially a patchwork of different systems that exposes Americans to significant financial risk. The Electric Power Research Institute estimates that power outages cost more than $100 billion per year. Most are uninsured. The Insurance Information Institute estimates that 85 percent to 90 percent of U.S. businesses are not insured against power failure. The $11 billion in the stimulus package for smart meters is probably just the down payment. Dr. Daniel Kamman of Lawrence Berkeley National Labs, and an Obama advisor, estimates the final cost to modernize the grid could exceed $400 billion. In their role as risk managers, agents need to advocate for a reliable grid.
Private Investment Will Follow
We are already seeing venture capital flowing to energy-related investments. The long term returns are attractive. T. Bone Pickens and a group of Minnesota investors are planning a major new facility to produce better, stronger blades for wind turbines. Silicon Valley has re-tooled to manufacture solar panels. The U.S. is full of unused manufacturing facilities, and the green jobs fever is just catching on. Consider how quickly American industry retrofitted itself to make tanks and bombers in the early 1940s. The risk challenges and insurance opportunities are already here.
For the past several years, state and local governments have carried the ball when it comes to these investments in energy and energy efficiency. Western and New England states have implemented carbon cap and trade legislation. California and at least 10 other states allow local government to finance energy retrofits through property tax loans and liens. Most major cities have enacted building codes that require construction to conform to LEED (Leadership in Energy and Environmental Design) standards. Some insurance companies and many agents have already recognized these developments.
The train is about ready to leave the station. Agents with an eye to the risks and opportunities of the future are on board. Are you?