Insurance of Green Buildings – The Implications

by | Jun 30, 2016 | Business | 0 comments

To waste, to destroy our natural resources, to skin and exhaust the land instead of using it so as to increase its usefulness, will result in undermining in the days of our children the very prosperity which we ought by right to hand down to them amplified and developed

-Theodore Roosevelt

 

Roosevelt was not attempting to carve out a space for himself in the subject of environmental conservatism. He had amassed plenty of significance in that arena of policy already. No, he was simply and nobly concerned with future generations. Since the environment affects us equally, why not look at one of the most revolutionary conservation approaches and how it could possibly affect your bank account once you decide to adopt it. Let’s explore green buildings and the challenges that these pose in terms of specifically insurance and securities.

Sustainability is the way to go for the sake of our beloved planet. Sustainability does not necessarily mean conservation, though. There is so much talk about resource conservation and the appropriate precautions to take. Every Tom, Dick, and Harry is expected to be at the forefront of advocating or implementing energy-saving initiatives at the household, community, and institutional level. While this is certainly a way to go in terms of getting as many people actively involved in conservation efforts as possible, it is imperative to understand the financial implications of these efforts as related to green construction. Green buildings have a lot of benefits, the U.S Environmental Protection Agency (EPA) notes that green buildings have not only environmental but also economic and social benefits. It’s proven, so why not participate in conservation and make your next home a green building! You can get further insights on the particulars of green building as listed by the U.S. EPA here. Besides these points, there are other important considerations as highlighted by Catherine Mohr

 

Green buildings are beginning to enjoy mainstream adoption and success. With this development come many insurance issues that are of concern in every aspect of green building. As an interested individual, you are required to be familiar with the forms of related insurance. Insuring a green building requires an understanding of a form of insurance known as green insurance that aims to cater for unforeseen and un-anticipated risks. It has incorporated extra considerations to traditional forms of housing insurance. Some of these green insurance concerns are damageability, rating issues and availability of building materials. For the sake of being on the safe side after the occurrence of a risk it is better that you, an earth lover, fully grasp the dynamics of the green insurance.

Other forms of housing finance differ considerably from green insurance. It is important for insurance underwriters to consider that it takes more time and specialised materials to repair malfunctioning components of green buildings. Linda Kornfield observes that the time elapses while searching for appropriate materials for each building and the repair duration. Usually, as the owner of the green property, you will need to pay for the difference between the repair of a standard house and that of a green building. In the future, insurance policies for green building will need to cater for replacement of the malfunctioned parts of the cost of a new creation. Some elements of green building pose additional insurance considerations since they tend to cause additional risks or reactions. An example is the inclusion of vegetative roofs and fuel cell technologies. The interaction of these technologies with other components of green building is uncertain but also a risk for consideration for insurance underwriters. Already, there are claims of unexpected interactions giving rise to the “green gaps” that can cause damage. Insurance underwriters, now and going forward need to factor these uncertainties. This is likely to see the insurance cost for green building rise than the traditional house insurance.

Vegetative Roof

Pretty and green, but safe and secure?

Insurance coverage for green buildings will also needs to factor the recertification costs in the event that a green building sustains extensive damage. You might ask, what is the role of recertification and is it necessary? The role of the recertification is to document the levels of green guarantee required while making the repairs. These costs meet the demands of expert consultants, engineers and other workforce need for designing and reconstruction. Insurance underwriting will also have to factor the recycling and debris removal costs. The materials to be recycled need to be separated before they are sent to a certified recycling establishment. These extra costs in separating the materials from the damage of a green building need to reflect in the insurance policies.

According to Erik D. Nevala-Lee, underwriters need to include other common hazards in green insurance policies in the near future. Green buildings are being used increasingly for business purposes. Therefore, it is not only critical and appropriate for the policies to have additional coverage for business interruption losses now going into the future. The typical business interruption policies seek to pay the profits foregone during the period that the business was not operational. Green buildings will normally take more time to repair or replace. Kornfield asserts that the period of indemnity is longer since the construction of green building must comply with certification and probably use special consultants or tools. Therefore, considering the time taken to get a business back in operation is and will be important for policy considerations. However, you will have to dig deeper into your pocket. As the insured will have to pay more in expectation of the unique dynamics of operating a business in a green building. This is so if the rebuilding process is to be within the green certification standards.

Green-Magic-Homes-110

The future of green buildings? Maybe – but this comes at a price for insuring the values here. How do you replace materials when damaged? What sort of follow-on effects are there in these houses that would not be present in regular building blocks or villas? Hard to tell, so hard to insure.

Another future insurance consideration for green building concerns contractual risks that emerge from rating issues. With each level of certification of green buildings, there are expected performances. If the expected performances are not in line with the level of certification pursued, there are consequences. Insurance underwriters need to be aware of these consequences and use them to devise policies that factor the same. There is also reputation damage that emerges if the green improvements do not end up giving the expected performance. However, it is imperative to note that the care of green buildings is constantly changing and makes it difficult for insurance underwriters to substantiate a claim. There may be different considerations that makes it difficult to distinguish a normal and a “green” claim. For instance, a green building may have attained a LEED Silver certification but experiences a poor performance of its ventilation system. It could be that the system was designed poorly. While some may call it a green claim, it is essentially a normal claim caused by the mechanical engineers designing the system. This implies that the rating system does not offer a solid provision that all resulting claims will be green claims. Insurance underwriters will have to work with skilled consultants to eliminate the ambiguity in classifying the claims resulting from green rated/certified buildings.

Summing it up, green buildings pose a unique set of risks. Additionally, there are evolving ways of maintenance of green buildings. This present insurance policies makes with unique set of risk exposures for considerations and some ambiguous claims. Essentially, insurance underwriting, going forward, will need to consider that green buildings require specialized consultations and engineers, special building materials and take more time to repair. Additionally, the future policies should include unexpected risks of interactions of some of the green building materials while designing the insurance policies. There should also be policy considerations for business interruptions and poor performance of some elements of the green building based on their rating expectations. The insurance considerations in green building evolve over time as new challenges and opportunities emerge.

Do you have a green building project that is proving challenging to insure or otherwise secure? Are you concerned about how safe vegetative roofing or rainwater filtering really is for you and your kids?