Insurance Company Opportunities in a Competitive Electric Environment:
A Profitable Greenhouse Gas Mitigation Strategy
The genesis for this concept came when USAA, an insurer, began to offer Sprint telephone service. This came at a time (1995) when debate was just beginning on deregulation of the electric utility industry which is under way in Connecticut and many other states.
Upon receiving the advertisement for telephone service offered by USAA, I began thinking about how insurers might make excellent providers (not generators) of electricity (variations might also include gas and oil for home heating and hot water) and how that might be combined with other existing product lines into a single package. If regulatory barriers exist for insurers to enter into such arrangements, alternate methods have also been devised but research indicates this does not appear to be a problem.
As envisioned, insurers would provide home insurance, as they currently do, with a monthly payment option. They would also offer an annuity which would be agreed upon as to a monthly amount between them and the client. Finally, insurers would provide the client electricity based upon their past usage and levelized for a flat monthly amount. An important feature is that because insurers could be bulk buyers of electricity, they would be able to realize an economy of scale unavailable to individual consumers.
There would be one bill for all three services--insurance, annuity and electricity. The monthly bill would portray the distribution of expenditures as in the charts below. The real novelty is that insurers, along with the supplier of electrical service, would also offer services & products which would allow the client to reduce their electric bill through energy conservation. Those monthly electric savings would automatically be put into the annuity portion of the bill to increase the retirement fund. This is the major innovation although there is greater detail on additional savings in the full plan which also includes property loss reduction aspects and sale of tradable emission allowances to enhance annuity savings.
Obvious benefits include that many Generation X and Millenials are extremely concerned about retirement income and this presents a simple, transparent, voluntary savings plan that may appeal to them. It also becomes a powerful marketing tool for insurers that ensure long-term customer retention. It is also far more profitable for insurers to have the client’s money in a long-term annuity than to make a marginal profit on the sale of electricity. It also reduces greenhouse gases as an incidental benefit without a carbon tax or drop in GNP, which is why this concept was originally formulated. See full report.