Unlocking net zero - how can home insurers help?

If the UK is going to meet its target of net zero carbon emissions by 2050, urgent action is needed to make UK homes more energy efficient. 26% of the UK’s total emissions comes from homes and the UK currently has the worst housing stock in Europe for energy efficiency, with only 29% of all UK homes having an energy performance certificate (EPC) rating of C and above.

What can home insurers do to increase public awareness of the importance of reducing emissions? And what steps can home insurers take to encourage their customers to transition towards a more sustainable lifestyle?

Linking Home Insurance and Green Choices

According to a Viewsbank survey conducted by Consumer Intelligence at the end of 2021, 81% of consumers say they want their insurer to be environmentally-friendly. There seems to be a mismatch, however, between what customers say they want in theory and what they look for in practice when they pick a home insurance provider.

In the most recent Fairer Finance survey of home insurance customers (August 2023), only 5% of respondents said they chose their home insurance provider because they consider it to be a green company. This was the least commonly-given reason for picking a provider. The most common reason, according to our survey, was price.

This suggests that insurers are not currently doing enough to help customers connect the dots between making ‘green’ choices and home insurance. We looked at the product pages of 50 of the largest home insurance providers and found that none of them mentioned anything to do with ‘sustainability’, ‘net zero’, or ‘climate change’.

In their climate change road map, The ABI acknowledges that understanding insurers’ role in the transition to net zero remains a challenge for the industry, even though some positive steps have been taken, such as insurers investing in green initiatives and developing markets for repair and replacement instead of more traditional ‘new for old’ policies.

Incentivisation

As the results of our survey show, price is the single largest factor when customers pick their home insurer. This means that if insurers are going to successfully incentivise customers to go green, they need to offer policies that reward customers who choose to adopt green technologies that increase energy efficiency.

In the United States, some insurers are already offering premium reduction schemes for green customers. These schemes reward policyholders who use renewable energy sources, such as solar panels and wind turbines, with lower premiums.

In the UK, some mortgage providers encourage their customers to go green by offering incentives for energy efficient homes, such as cashback when you purchase an energy efficient home, lower interest rates, and loans to make homes more energy efficient. For example, Kensington Mortgages will pay customers £1,000 cashback when they improve their home energy efficiency rating by moving to the next EPC banding.

Customer tools

Mortgage providers are also better at educating customers on the importance and benefits of going green than home insurers. Several mortgage providers’ websites feature pages giving tips on sustainable living and tools for making your home more energy efficient. Some also publish and signpost their sustainability targets as a business.

Looking at our data on why customers choose their mortgage provider, we found that providers that did a better job of giving tools to help customers go green on their websites were also more often chosen because they were environmentally-friendly. This suggests there is a positive relationship between communications on sustainability and customer perceptions of how green a company is.

Home insurers should add tools to their websites that give customers ways of improving the energy efficiency of their homes, matching best practice in the mortgages sector. Hosting these tools will help customers understand their homes’ energy efficiency, and so empower them to make greener decisions by retrofitting and adopting cleaner ways of generating energy.

Making coverage clear for customers

In the UK, most home insurers cover damage to green technologies such as solar panels, wind turbines, heat pumps, and electrical vehicle charging points as part of their standard home insurance offering. Many providers, however, fail to clearly signpost this information on their websites and in their policy documents.

To accelerate the adoption of more sustainable energy sources, cover for green technologies should be made clear in online journeys and supporting documentation. The chart below shows how difficult it is to know what is and is not covered by home insurance when it comes to green technologies.

We checked the policy documents of 50 of the largest home insurers to see if they clearly listed green technologies under their covers or exclusions. Clear communications on what is and is not covered in the policy document varied between the different types of green technologies. Electrical charging vehicle points (16%) and air & ground air pumps (16%) were noticeably absent from definitions and examples of buildings and fixtures and fittings. Given that the Climate Change Committee aims for the instalment of 600,000 a year from 2028 it is important that home insurance providers start to list these as either covers or exclusions in their policy documents.

If the information was unclear in the policy document, we either called the provider or used their webchat function to ask for clarification on coverage. If the AI/customer care agent could not answer our question, we sent an email to gain clarification on the cover. We were directed to underwriters on a number of occasions because some insurance intermediaries did not know the answer to our questions.

When we reached out to brands to inquire about their coverage for green technologies, we observed that their response time varied greatly. It took them anywhere from four to 20 minutes to tell us if certain green technologies were covered as part of their home insurance offering. Many of the customer service representatives we talked to mentioned they had not encountered these types of questions before. Consequently, they either had to consult with their underwriters or search through a database, which often resulted in us being placed on hold for extended periods of time.

However, we did notice a trend among customer care agents who responded more quickly. They immediately asked us whether the green technologies in question were fixed to a property wall. This was because they could confidently assure us that all fixtures and fittings were covered under their standard buildings insurance policy.

What’s important to note here is that not all consumers are aware that these green technologies fall under the category of fixtures and fittings, making them insurable.

How can home insurers improve?

To improve customer experience and reduce unnecessary inquiries for customers care teams, we recommend the following actions:

• Update policy documents to make coverage of ‘green’ energy sources clear
• Program AI chatbots to be able to respond to questions around green covers (this is particularly important for digital insurers who do not offer the option to chat with a customer service representative over phone or via a live webchat)
• Make sure customer care agents can respond to these types of questions or have a clear process in place where they can patch the call through to an expert who can answer the question if they are unsure.

By clearly covering these technologies, insurers effectively encourage individuals to adopt them, since they give those individuals the knowledge that they will be covered if they choose to adopt green technologies for prospective buyers who are looking for clear covers and exclusions. By taking the above action insurers can remove friction for customers who want to know if their green technology is covered which is beneficial for both the insurer and the customer.

If insurance providers do not present green technology clearly as covers to prospective buyers they won’t know if their green investments are covered or more importantly, consumers won’t know that adopting such technologies are easily insurable in future creating a barrier to society transition to net zero.

To enable customers to make greener choices by better informing them, we recommend the following:

• Introduce energy efficiency tools so customers can understand their current energy efficiency and how they can improve it.
• Offer guides/webpages to help your customers go net-zero that are clearly signposted on the home insurance product page.
• Make sure that you make it clear that adopting green technologies won’t affect customers’ policies.
• Look for ways to incentivise customers with lower premiums if they choose to adopt green technology during the course of their policy.

Home insurers can play an important role in society's transition to net-zero if providers start to talk about green issues more prominently on their websites and add clarity around what green technologies are and aren’t covered by their policies.