Green Building Insurance

Green buildings, sustainability incentives and energy efficiency strategies have created new opportunities for business. Forward looking businesses are paying attention, getting educated and growing their profits... Is your business aware of the opportunities?
TeroVesalainen

Business Sustainability Strategies

One of the main drivers of corporate risk management is sustainability.

Each year "Corporate Knights", a Toronto based research firm, produces its "Global 100" ranking.

The Global 100 requires an intensive evaluation of publicly available data from over 4,000 corporations each year.

Corporate Knights evaluates firms with at least $2 billion in market value across 14 key measures. Measures include the use of management resources, finances, human resources performance and employee turnover.

Top executives in the Global 100 receive additional bonuses if their companies meet stated sustainability targets. Indeed, meeting sustainability targets is good for investors as well as management.

An evaluation of the financial performance of the Morgan Stanley Capital International (MSCI) All Country World Index, a broad basket of global, publicly traded equities representing companies across the globe, compared to the companies in the Global 100 suggests a positive link between sustainability and increased profit.

According to an article in Forbes, the Global 100 outperformed the MSCI All Country World Index by 24 percentage points over a 10+ year period.

The United States has 19 companies in the Global 100, the highest of any country.

The U.S. is followed by France, the UK, Canada, Germany and the Netherlands with 12, 11, 6, 6 and 5, respectively.

These trends reflect the strong economic and business case that green buildings, sustainable products and business practices bring.

Will your company be strong in the changing market of sustainable business practices? Or will your competitors take advantage of you for not moving quickly enough in this area?

Data on Sustainable Practices in Business:

A study by MIT Sloan School of Management found that 68% of business executives increased their commitment to corporate sustainability over the last year.

The vast majority of business executives see a commitment to sustainable practices as a core strategic consideration.

KPMG’s “Corporate Sustainability, A Progress Report” concluded:

"The evidence that sustainability is becoming a core consideration for successful businesses around the world grows stronger every day. Sixty-two percent of companies surveyed have a strategy for corporate sustainability, up from just over half in February 2008. Regulatory requirements, brand enhancement and risk management remain key drivers of sustainability. Sustainability is being viewed as a source of innovation—and new growth. Forty-four percent of executives agree sustainability is a source of innovation, and 39 percent see it as a source of new business opportunities."

Green Building Investment Statistics:

According to the US Green Building Council, it is estimated that 40-48% of new commercial construction will be "green", equating to a $120-145 billion insurance opportunity. More than 3.6 billion square feet of building space are LEED-certified.

Compared to the average commercial building, the LEED Gold buildings in the General Services Administration’s portfolio:

  • Consume 25% less energy
  • Use 11% less water
  • Have 19% lower maintenance costs
  • Enjoy 27% higher occupant satisfaction

LEED and other green building rating systems help designers, architects and contractors with a framework for more durable, efficient buildings. Frameworks for building green are available for commercial, multifamily, retail, hospitality, healthcare and single family homes.

One of the biggest opportunities is in updating the existing building stock. Programs such as CPACE are available in certain states and make it possible to upgrade buildings with LED lighting, solar panels, improved HVAC, building envelope, new windows, fuel cells and energy storage. All of which can help boost net operating income by reducing energy and/or electricity use.

Current market trends suggest that building owners and managers will invest an estimated $960 billion (between now and 2023) on greening their existing built infrastructure. This year, the green share of the largest nonresidential retrofit and renovation activity will more than triple, growing to 25-33% of the activity by value. Firms that completed green building retrofit projects report:

  • Decrease in operating costs: over one year, 9%; over five years,13%
  • Expected increase in asset valuation according to building owners: 4%

Sustainability and Insurance

Green insurance coverage forms cover the liability associated with the unique design, production and use of sustainable strategies and green products. Green forms and endorsements can provide a backstop against promises of green energy performance, specific energy conservation measure (ECM) claims. They can also provide coverage for renewable energy projects, and green building upgrades in the case of covered claims. 

The following are types of commercial green and green building insurance:

  • Upgrade to Green Commercial Fleets
  • Insurance on Renewable Energy Projects
  • Insurance for Renewable Energy Property, Equipment and Loss of Use
  • Insurance for Green Building
  • Energy Savings Insurance
  • Insurance for Carbon Capture & Storage/Emission Reduction Projects
  • Green Building Coverage Against Adverse Publicity
  • Political Risk Insurance for Carbon Trading

Solar Energy Insurance

Before installing a commercial solar energy system, check with your insurance company to ensure that your solar contractor maintains current and appropriate business insurances, which may include:

  • Property insurance: coverage commensurate with value of buildings, equipment, or improvements to a property
  • General liability: $1,000,000 per occurrence, $2,000,000 aggregate; covers negligence claims, settlements, and legal costs
  • Inland marine insurance: insures against loss of equipment not on the property premises
  • Workman’s compensation: $1,000,000 each accident, each employee, policy limit
  • Professional liability insurance: insures against errors and omissions often required by board of directors
  • Commercial vehicle insurance: insurance for owned and rented vehicles; or personal vehicles used on company business
  • Warranty insurance: equipment warranty issued by manufacturer but backed up by an insurance company in the event that the module or inverter company goes out of business
  • Commercial general liability insurance: in a form or forms covering all installations undertaken by Installer and all subcontractors, written on an occurrence basis, including coverage for products and completed operations, independent contractors, premises and operations, personal injury, broad form property damage, and blanket contractual liability, in an amount at least equal to $1,000,000 per occurrence, $2,000,000 in the aggregate for completed operations, and $2,000,000 general aggregate
  • Business interruption insurance: covers lost revenue due to downtime caused by covered event.

For large commercial solar systems, ongoing operations and maintenance (O+M) program best practices can have a positive impact on reducing insurance losses, thus reducing premiums paid for insurance for both contractors and building owners. An insurance engineer and underwriter should be engaged to evaluate a facility (or the design for a yet-built system), including the O&M program, to quantify loss potential and estimate insurance coverage and costs. This review also provides a better understanding of risks that might impact the performance of a PV plant. Mitigate liability and risks through contracts that clearly articulate the insurance requirements to O&M service providers. Concepts related to insurance include:

  • Normal Loss Expected (NLE): which determines the dollar amount of the deductible for an item which can be expected to occur, such as inverter replacement, without an insurance claim.
  • Probable Maximum Loss (PML): which determines the premium paid on a portfolio over time.
  • Maximum Foreseeable Loss (MFS): which sets dollar limits on coverage and represents the worst-case loss scenario.

Green Building Insurance Lack of Awareness:

According to an online survey by Business Insurance, of 315 executives who influence and participate in decision-making in their organizations, 36% said they are not sure whether their commercial property insurance was designed to include green buildings. Thirty-four percent said it is not, and only 30% said their coverage includes green buildings.

Meanwhile, of those who have green building insurance, 32% said they searched themselves for the coverage, and only 28% said a broker advised them to switch to green coverage or add an endorsement for green features.

Of 212 respondents who said their commercial property insurance does not cover their green buildings, or they were unsure about the coverage, 62% were unaware that green insurance or specific endorsements are even available.

Connect.

Find members with green building and green business skills and experience.

Meet Pros.

AvatarStephen Bushnell's picture
Consultant
San Francisco, CA
AvatarRob Freeman's picture
Vice President
Ridgefield, CT

Learn.

Relevant education and training to consider.

 
: 650-746-4261