Insuring Green Risks

Industry Questions

The "Green Revolution" has brought about many changes to not only the building industry but to others including the insurance sector. The insurance industry is certainly not without questions when it comes to insuring green risks. Which companies are going to underwrite these risks? What coverage will be available? What are the unknowns with insuring green risks? What outcomes can we predict? Will new types of claims result from these exposures? Will insurance professionals need formal training for green risks? I can go on and on with these questions but the state of the current building iindustry requires answers from insurers. Green risks are here NOW and building owners, property managers, risk managers and the restoration industry among others are looking at the insurance industry NOW to offer market solutions to the very special characteristics of these green risks.

The level of "green" involvement by the insurance industry ranges from two extremes: those doing absolutely nothing to companies selling policies created to specifically insure the materials, methods, and processes featured in green risks. In the middle there are insurers who have begun to encourage some green measures in only their business operations (recycling, carpools, van pools, etc...) while others are in the early stages of researching and developing green insurance products to offer their clients. Those companies who are ahead of the others in this market are already offering some kind of coverage, i.e. Travelers, CHUBB, and Farmers insurance companies.

Even for those writing green policies, there may be questions lurking. Frankly, insuring green risks is new territory for the industry and insurers will need time and experience protecting these risks to truly understand all their implications and be able to accurately rate these policies. It is reasonable to say that no one has the clear answers yet on what outcome the insurance industry will see. Will total claim expenses be lower on these risks than non-green ones? Will premiums be lower on green risks compared to non-green risks? Will green buildings/homes harm non-green buildings/home values by making them obsolete? What issues will be tested in court over green coverage?

For the claims professional assigned a loss on a green risk, there will be questions? Is there a green policy in effect? What special provisions does it offer? are limits adequate to rebuild a green risk in the event of a large catastrophic loss? What special expenses will the insurance policy in force cover? will commissioning or recommissioning expenses be covered? Will the policy cover re-certification costs on green risks? will the policy cover added delays to in rebuilding due to the re-certification process? Will qualified restoration contractors in green buildings and green programs be available? Again, the list of questions could go on and unfortunately some of the answers to these questions must come later after the industry is more committed and claim experience develops. It may be too unrealistic to suggest that claim issues we face today won't be the same exact issues we will address in a few years as this section of the market evolves, adapts, and matures. As long as the industry can offer consistent reasonable coverage for green risks at a reasonable premium, then green insurance should expand and be around as long as green risks remain. What must happen in the meantime to get us there is yet another question.

Insurance Industry Response

The following is just a snapshot of products being offered by property insurers in the United States. The following review of policies/endorsements should help illustrate the current types of coverages in the market. Some insurers offer green policies or endorsements at additional premium and may require other underlying coverage. It is important to mention the products offered by various insurers are not standard policies or endorsements; not every company offers identical coverages.

The information below is only a summary review of the current green market and are not the titles or actual endorsement/policy. Limits, special provisions, and special deductibles could still apply.

Homeowner

- Coverage for loss of income or extra expenses resulting from physical damage to alternative energy systems:

These endorsements may provide limited coverage when net metering is lost because of a covered peril and the insured has to purchase electricity that otherwise would not be needed because the structure is generating its own electricity. There could be coverage to inspect, reconnect (and permit fees) assessed by a utility company or other when the alternative energy system is back on.

- Enhanced coverage to landscape - trees, shrubs, plants:

Some endorsements increase the limit of liability for covered trees, shrubs, and plants (in the aggregate and per item) and offer greater limits to "eco-landscaping" which includes plants that provide shade to the home, hardscape, HVAC or other to reduce energy costs.

-Upgrade to green coverage:

Covers costs to upgrade green components in the event of a partial or total loss. Areas which may focus on include energy efficiency, water efficiency, indoor air quality, and sustainability. These upgrades include Energy Star lighting, appliances, HVAC, windows, low or dual flow toilets, low flow faucets, no VOC interior paint, and recycled content building materials. Sustainability coverage may upgrade the home to a green program standard such as the Energy Star Home (builders Option Package), pay for testing, and more. some of these endorsement may provide the homeowner to keep any rebates or other government/utility incentives for upgrading. Other companies may offer endorsements to upgrade to LEED for Home standards, hire Leed AP, and certification fees if total loss occurs.

Some companies may offer a premium discount when insuring an existing LEED certified or other home.


Commercial

- Green upgrade coverage:

Covers cost to upgrade standard materials with green components such as no VOC paints, Green Label carpet, Energy Star products, Energy Star roofs, and Water Sense fixtures to name a few. If a total loss, some policies may cover the cost to rebuild the property under the criteria of a green rating program.

- Green certified building coverage:

Covers buildings already certified under a green program. Coverage may include provisions for vegetative roofs, alternative power systems and water systems. In addition, coverage may be available to hire a LEED AP, recoup loss of income from net metering losses, and recycling debris. Finally, there may be coverage to hire an engineer for commissioning and perform other tests. Some companies may offer coverage fr certification with other rating systems like Green Globe.

- Green manufacturers property endorsement:

May cover the cost for non-green manufacturing facilities to upgrade to green equipment, materials, and business personal property after partial or total loss.

- Green certified manufacturing property insurance:

May cover the cost of green manufacturing facilities to be restored to their original LEED rating and may cover the upgrade to a higher LEED rating too.

- Green coverage for business personal property:

Covers the cost to replace non-green business personal property with green products or materials.

- Debris removal expense endorsements:

Pays additional debris removal expenses incurred to salvage and recycle debris from a covered property loss. These endorsement may have limited amounts of coverage.

- Delay in completion of a project:

May provide some coverage for loss when a project completion is delayed due to the certification process from using a program like LEED.

- Energy efficient tax credit endorsement:

May provide coverage for tax credits lost on certain qualified energy efficient components following covered causes of loss to covered property. These endorsements may have limited amounts of coverage.

Claims Checklist

Some strategies in green building programs have little effect on the claims professional. There isn't much we can do to alter the orientation of a building for passive solar design, but that decision might have counted towards the buildings certification. Decisions made to manage soil erosion and preserve natural habitats during construction are again areas which may have no real implication s for insurers. However, decisions such as to lay Green Label carpeting, install recycled content materials, use only low or no VOC building materials, or install an Energy Star roof system will concern the claims person eventually. Furthermore, the implementation of high efficiency appliances, plumbing, lighting, ad electrical systems will affect us too. Finally, we cannot rule out that claims adjusters will be exposed to solar, wind, and other types of renewable energy systems and water saving systems.

The green measures that are anticipated to affect our industry are the ones insurance professionals should be familiar with and be prepared to assess loss to. Green building programs are "climate-specific" and tailored for conditions in particular regions. What may be a common green practice in the northeast U.S may not be a good practice in the southwest U.S. Following this logic, claims professionals should be familiar with the green measures and programs in their market/region. The knowledge a claims adjuster in New York obtains over time may vary from the knowledge a claims adjuster in San Diego receives. While the fundamentals of many green building programs are similar, the methods to achieve common goals in these are not.

Another borrowed idea from green building programs that the claims professional can use is checklists. Most green building programs utilize a checklist when designing and constructing projects. Checklists help ensure the project meets its goals and certification. This process should also be followed by the claims professional when assessing a loss on a green risk. The claims person should have a prepared list of specific questions to address on claims involving green risks.