By MATTHEW BRODSKY, senior editor/Web editor of Risk & Insurance®
At least half of all nonresidential buildings will be green by 2015, estimated Phillip Glick, senior vice president at insurance brokerage ECMB.
"We think the trends will be powerful and unstoppable," he said.
Yet the insurance industry is lagging when it comes to providing new products and coverages for green properties and construction. In large part it's because of a fear of the unknown, the new. No one is quite certain how green buildings and products will "behave." What sorts of losses and liabilities will they lead to? And when claims do arise, how will new and old insurance coverages perform? Who will end up with the bill: contractors and designers, building owners and tenants, or the insurers?
"New scares underwriters," said Samuel J. Garro Jr., senior manager with OneBeacon Insurance.
Still, in 2010, some of these questions about claims are getting answered.
Some data on claims is becoming available though. Fireman's Fund, the first insurance company to offer green-related coverage in 2006, has tracked losses over the last four years, according to Glick. What the insurer found was that green buildings had 20 percent fewer claims than nongreen buildings.
Fireman's Fund also found, said Glick, that general liability and environmental policies on green buildings suffered 10 percent fewer losses.
Still, questions persist. These include the standard ones that underwriters have been talking about for the past couple of years. For insurers, they are kept up at night with nightmares of green roofs and other redefinitions of covered property. (Green roofs are building roofs covered with vegetation, gardens and other landscaping.) How will all these new, untested green products perform on their own, then together after construction? They wonder about higher rebuilding costs for green buildings, the higher costs of removing and recycling debris from green demolition or construction sites. What about the business interruption losses when photovoltaic or wind elements are damaged or lost? How much income were these sustainable energy devices earning from selling power back to the grid?
Or what of the soft costs? Lost rent from tenants because of the extended rebuilding time for green structures? Or what happens if the green certification process changed since the first construction, and during rebuilding certification points cost more?
But they also include pointed new questions, which have arisen as people have put more thought into just how green buildings and reality will interact.
For instance, Garro wonders about all of the "fly-by-night contractors" who could already be involved in constructed green buildings.
"They will be getting into this now because it's hot," he said.
After a huge catastrophe--say a hurricane in Florida--no builders at all might be available afterward, let alone any specialty green products. The post-CAT phenomena known as demand surge results in dried-up supply and ratcheted-up costs for standard contractors and buildings, let alone green.
And talking about inexperience, when insurance adjusters work on some of these green claims, they might be doing so for the first time (even if they are hardened adjusters who have been around the proverbial block).
"We have a huge learning curve to go through," said Glick.
To answer specific questions, it might be best to examine specific claims or almost-claims occurring at actual green buildings.
Glick recalled the experience of one green building in Wisconsin. While helping to put in a green roof, the roofer on the project noticed that the proposed load calculations on the roof didn't match the precipitation in the areas for the last few years. Had the building already been constructed, given the ungodly rain storms they'd been having, the roof would have collapsed. Fortunately, the experienced roofer (obviously not some fly-by-night type) caught this and they corrected the problem before it was finished.
The broker then brought up a condo project in Philadelphia where bamboo had been used for all the flooring. Bamboo is prized in green projects because the fast-growing plant is considered more sustainable than slow-growing hardwoods. However, in this case, during the condos' first winter, the bamboo bent and split. About $400,000 is being spent to fix the flooring.
In another green condo project in New York, recounted Glick, a geothermal well had been installed. It had been guaranteed to lead to a 40 percent reduction in heating costs. That didn't happen. So tenants sued the owner, the owner sued the contractor. It turned out insurance didn't cover it. The well didn't malfunction; it just didn't perform as well as originally believed.
Then there is a claim that thankfully hasn't seemed to occur yet. Imagine a multimillion dollar green building like the Comcast Center in Philadelphia. At 58 stories and built with a $540 million price tag, it is the tallest green building in the country.
How do you insure Joe the Plumber who gets a job for one of the tenants, asked Garro? Then what happens if he burns the whole place down?
Bruce J. Offner, owner and partner at Resource Dynamics/Green Building Education, mentioned that Liberty Property Trust, which built the Comcast Center, handles its own maintenance and housekeeping, to ensure its green buildings stay green (and you'd think as well to prevent such cataclysms).
But you get the point.
Offner, Garro and Glick spoke during a presentation at the Philadelphia All Industry Day, which was hosted March 26 by the Insurance Society of Philadelphia, local chapters of the CPCU Society, and the Delaware Valley chapter of the Risk and Insurance Management Society Inc.
Green structures are buildings designed and constructed to meet certification guidelines for sustainability and environmental impact like the U.S. Green Building Council's LEED program and the Green Globes system.
Insurers that do offer green-related coverages and endorsements include Fireman's Fund, Chartis, Zurich, ACE, Liberty Mutual and Lexington.
May 1, 2010
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