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By CYRIL TUOHY, managing editor of Risk & Insurance®

Don't confuse this hybrid with a Toyota Prius, one of the most popular green automobiles. Yet this hybrid property insurance product could end up doing just as well in the commercial property/casualty marketplace.

Sponsored by the Bermuda-based specialty property/casualty insurer Ironshore, Vacancy Assure provides limits of up to $25 million to protect vacant or partially occupied properties against named perils. A special environmental enhancement offers up to $10 million to protect against environmental exposure and mold.

How much premium is out there for this kind of product is another question, and if Ironshore's brain trust knows, company executives remain coy.

"We didn't really go into it with a great sense of where premiums would lead us to," said Joe Boren, CEO of Ironshore Environmental. "We have real estate clients who were asking for it, and so told them we would do it. We've been quoting and selling it."

Tony Mammolite, recently named head of worldwide property at Ironshore, said Vacancy Assure fused separate property and environmental coverage into one, and that demand for the product has appeared in the past 12 to 18 months.

Glance at national vacancy statistics, and you can see why clients are knocking on Ironshore's door.

The national office vacancy rate rose to 17.4 percent as office buildings across the country lost 1.8 million square feet of occupied space in the second quarter compared with the first quarter, according to New York-based research firm Reis Inc., cited in a Wall Street Journal Web site article posted July 6.

Across 82 metropolitan areas tracked by Reis, the amount of occupied office space nationwide has dropped by 133 million square feet, the size of 2,300 football fields, since 2008.

Insurers traditionally don't like to insure vacant buildings as they are not as well maintained compared with occupied offices, Boren said. Keep in mind, as well, that construction premiums flowing into the coffers of the carriers have dried up as well. So, with real estate clients clamoring for coverage, Ironshore's actuaries got to work in an attempt to pry open further a window of opportunity.

Boren said that, to his knowledge, Vacancy Assure is the only product its kind in the marketplace.

In the past two years, competing carriers have launched products to cover partially completed construction projects, even as premiums to insurance carriers are drying up.

Zurich North America's REsolution product is designed for real estate companies managing their risks under one, integrated insurance program. It, too, offers $25 million in limits.

Lexington Insurance Co. in 2008 launched Lex Idle Asset Liability Protector for partially built development projects.

ACE USA, the U.S.-based retail operating division of the ACE Ltd., in March 2008 announced the launch of ACE Green Building Restoration. The endorsement and stand-alone policy is designed to help customers that want to repair or rebuild damaged property to an environmentally friendly standard.

Why all this interest? Ordinarily, a building with low occupancy rates might be cause for lower premiums. There are fewer floors to maintain. Unfortunately, though, that's not the way it works.

The vacant space still needs to be insured--from loss from fire, water damage or wind, for example.

"Even if a building is 50 percent or 70 percent occupied, you as the real estate management company are going to maintain the HVAC system," Boren said. "You're not going to ignore the people working in your building."

July 27, 2010

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