Insurance Agents: Get Ready for Green Building Exposures

By | March 30, 2010

An idyllic, pasture-like setting is not the only green image agribusiness owners would like the public to imagine when they picture their operations — they increasingly want to be known for their “green” environment-friendly buildings, too, according to Scott A. Ellis, assistant vice president for The Hartford Steam Boiler Inspection and Insurance Co. (HSB). The cachet of being green adds value to a business, he explained.

Consequently, although green insurance endorsements currently are focused on commercial buildings, coverage will soon need to expand to personal dwellings, as well as farms and farm buildings. “It’s going to happen quickly and cascade into other farm areas, too,” he said.

What It Means to Be Green

A “green” building employs technologies and practices to promote resource efficiency, reduce its environmental impact and increase occupant health, Ellis explained. There are three major certifications for being green:

  • The Leadership in Energy and Environmental Design (LEED) Green Building Rating System, which has LEED-certified, silver, gold and platinum levels;
  • The Green Building Initiative (GBI) Green Globes Rating System, which gives a rating of one to four; and
  • The U.S. Environmental Protection Agency/Department of Energy (DOE) Energy Star program.

About 15,000 buildings nationwide are currently certified as green, and that number is growing exponentially every year. Building owners often may choose to build green buildings because they can enhance the occupants’ health and well-being; have higher occupant productivity; increase sales and leasing potential; and provide a higher return on investment, with lower utility bills and reduced operating and maintenance costs. Additionally, green buildings enhance the community and local economy; provide public health benefits; and often help to protect threatened and endangered species, support sustainable resources and have an enhanced public perception.

“If a region has multiple homes and one is green and one is not, I believe there is a 10 percent to 20 percent incremental increase on the home’s value if it is designed to be green, because the benefits are magnified down the road,” Ellis said.

Furthermore, the Obama administration provides several incentives to go green; there are tax credits for those who implement green technology, and there are new federal standards establishing national energy efficient code and enforcement mechanisms, such as for heat pumps. Some states also are looking at writing green standards into their building codes, much like earthquake reinforcements are required by California building codes.

This means that by 2013, green building starts are estimated to be valued at more than $100 billion, Ellis said.

“Ten years ago, not very many farm owners would be talking about green buildings. But today, a lot of wineries and dairies, or operations that are vertically oriented and have a retail store, may be working hard to get a LEED certification symbol on the front of the store so that it is visible and they can benefit from the positive public perception,” he said.

With so many incentives to implement green features into buildings, it’s no wonder that a lot of insurers are coming up with green insurance coverage options for their policyholders.

Green Coverages

By HSB’s account, there are at least 22 companies that have collectively offered 39 specific policies, endorsements, coverage extensions or services for green buildings and/or equipment.

ISO offers a green endorsement for commercial package policies (CP 04 02), and companies were allowed to begin adopting them in March of this year. A business owners policy green endorsement (BP 14 75) will become effective on Aug. 1, 2010.

According to ISO’s forms, coverages provided include:

  • Green upgrade coverage: A percentage of the amount of loss from 10 percent to 50 percent and a sublimit applies;
  • Related expenses: includes waste reduction and recycling costs, design and engineering professional fees, certification fees and building air out, with sublimits selected;
  • Extension for period of restoration: 30 to 180 additional days for green upgrades during restoration; and
  • Rating (i.e. LEED-certified, Green Globes rated, or Energy Star).

Yet the ISO forms are just the tip of the iceberg. “The ISO BOP form is coming out, and will be used as a base standard. But a lot of companies are not waiting for ISO,” Ellis said of the August release date.

Furthermore, there are a lot of issues to address associated with being green. For instance, in providing green coverages, some policies define green certification according to LEED standards, while others use the Green Globes standard. “If your carrier uses LEED throughout but state building codes specify Green Globes standards, you’d have a conflict,” Ellis said.

As additional examples, some policies have a flat limit in compensating for loss, while others provide coverage on a percentage of loss. Some carriers might allow an insured to upgrade to a higher level of green certification, or allow for extra time to rebuild green in the business income calculation.

Evaluating the Risks

Just because a building is green, does not make it a better risk either, Ellis cautioned. For instance, a lot of municipalities are proponents of vegetative roofs because it reduces a building’s carbon footprint and provides better insulation. Yet the building design needs to be sturdy enough to hold additional water if the sod roof soaks up a lot of water after a rain.

“Are vegetative roofs a better risk in terms of roof collapse?” he questioned.

Similarly, many communities are providing tax credits for installing solar water heating systems. But “when you’re talking about bolting panels to a roof, did the architect put thought into water drainage and the impact of snow pileups on the panels (when designing the roof)? There are pros and cons to everything,” Ellis added.

There clearly are many issues to address when talking about green risks, and it’s a constantly evolving issue, Ellis said. “If green buildings are improving occupant health, what does that mean for workers’ compensation insurance?” he said.

Keeping these issues in mind, however, it’s incumbent upon independent insurance agents to help their clients — whether a single homeowner or someone with an agribusiness — to evaluate their risks and make sure they have adequate limits.

“One to two clients may be talking about green endorsements on forms, and agents may be trying to figure out what that means. … From an agent’s perspective looking at limits, it might be valuable to realize that while clients may not be getting hit today, in two years they might be in a claims situation,” Ellis said. Carriers and independent insurance agents need to stay on top of changes in the marketplace, he advised, adding this may be difficult to do given the changing marketplace.

“A lot of carriers are implementing their green policy options now, but it’ll look totally different in six months,” Ellis said. Green building is such a new thing that claims precedence is still being set. Nevertheless, given the green building growth in commercial properties, personal lines, and even farms and farm buildings, “it behooves insurance agents to understand the exposures and properly explain them to their insureds,” he said.

Ellis was a speaker at the Insurance Skills Center/Insurance Brokers and Agents of the West (IBA West) Agribusiness Conference held in March in Sacramento, Calif.

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