According to Michael Kravitz, president of Insurance Innovators, Inc., “Almost any company that writes property coverage will entertain green building risks.” Insurance Innovators arranges coverage for green contractors, manufacturers and distributors of green products, and owners of green buildings.
Neal Schmidt, vice president of underwriting at Philadelphia Insurance Companies, says, “We will write property coverage for green exposures on our full portfolio of products, which is driven by nonprofit and human services organizations along with some 60 other product lines.”
“It costs green to go green, and in this economy not many businesses have the green,” according to Edward Martindale, senior account executive at S. H. Smith & Co. He continues, “I think green building will eventually become a standard that companies use to choose vendors, contractors and others with which they do business. That being said, thus far we have seen very little in the way of green risks.”
Dusty Rowland, president and CEO of Mainstay Insurance Group, places green building risks with Chartis, Commonwealth, Lexington, Liberty International Underwriters and Zurich. Mainstay Insurance Group is the sponsored agent for the Association of Green Property Owners and Managers (AGPOM).
According to our experts, coverage is available in both the admitted and nonadmitted markets. Mr. Kravitz says, “Some of our companies are both admitted and nonadmitted and we may need to use nonadmitted paper to manuscript coverage that can't be done on admitted forms. The reason for us going nonadmitted would predominantly be if we could not meet the needs of the client within the ISO policy forms.”
Mr. Rowland’s program targets existing buildings in three industry groups: habitational, general real estate, and hospitality. He explains, “What is interesting about our program is that we grant credits for our target risks because we see them as having less exposure than traditional buildings. We have consistently seen management of green buildings as more experienced, sophisticated, and vested in their assets than their ‘brown’ peers, and that ultimately drives better loss experience.”
According to Mr. Schmidt, a key coverage to consider is business interruption. ”If you own a green building that is damaged or destroyed and you want it rebuilt, it’s probably going to take longer than it would to rebuild a conventional structure because you must obtain green materials, hire green contractors, and dispose of the debris properly. Where it might take three months to rebuild a conventional building, it might take six months to rebuild a green structure.”
Mr. Martindale agrees with Mr. Schmidt on the issue of debris removal, noting, “Green debris has to be recycled in an environmentally friendly way. That’s going to cost money because you can’t just take this kind of debris to the local landfill.”
“Some of the new green technologies might create a greater potential for loss,” says Mr. Rowland. “An example is green roofs. A green roof is partially or completely covered with vegetation and a growing medium, planted over a waterproof membrane. Some kinds of green roofs place higher demands on the waterproofing system of the structure both because water is retained on the roof and because of the possibility of roots penetrating the waterproof membrane. Since these roofs are still relatively rare, there is still some uncertainty about loss and claims trends.”
Retrofitting an existing building to add a green roof is an increased hazard because of the added weight, Mr. Kravitz explains. “When a new structure is built with a green roof, the engineers do a good job of ensuring that the loads are correct. It’s when someone retrofits an existing building that problems may occur.” He provides two examples. One is if a green roof is constructed with too much soil and the roof collapses due to the weight. The second is when water is used to recapture heat from the building and the weight of the water may be more than the underlying structure can support.
New technologies also add to the cost of repairing a damaged green building. If a building has LEED certification, the building owner will want it rebuilt to gain back that certification. Mr. Schmidt says, “The LEED standards are something of a moving target, because they change as new green materials and techniques are introduced."
According to Mr. Rowland, there are three important green property coverages. Green-certified coverage applies to both rebuilding and the extra expenses needed to regain LEED and other certifications. Green upgrade coverage pays to upgrade a non-green building to a green building. Green commissioning expense coverage pays for an engineer to inspect the repaired building to confirm that it is operating at its peak performance.
Added coverages are important but they may prove worthless if the building valuation is not increased to reflect the additional costs. This applies to business personal property and debris removal as well as to the building. A client who sustains a loss will be very disappointed if the coverages are in place but not all green options can be exercised because of inadequate limits.
The marketplace is open for green exposures. On the casualty side, Mr. Kravitz says, "I’m not seeing any reluctance to quote green contractors any differently than other contractors. In terms of underwriting, it’s a few extra questions such as those concerning the contractor’s expertise and the evidence used to support the values to be insured.”
The Green Building Institute (GBI) has accredited over 120,000 professionals in green building, meaning that the contractor marketplace anticipates a green building boom. The federal stimulus program is providing significant funding for retrofitting both government and private buildings. The cost of energy is beginning to rise as the economy begins to heat up.
Have you spoken with your clients about their retrofitting plans? Don’t wait until a loss occurs. Instead, act now while coverage and expertise are readily available and pricing is reasonable. |
