Sterling Seacrest Partners: Is Your Insurance Green?
Tuesday, January 29th, 2019
“Going green” is a common mantra for many businesses. Real estate developers are adding rooftop gardens to urban office buildings to reduce carbon emissions. Homebuyers are demanding homes constructed with recycled building products and environmentally friendly materials such as recycled glass countertops, bamboo flooring and non-toxic paints. Municipalities are adding LEED (Leadership in Energy and Environmental Design) certification to building codes. Thousands of professionals and trades people are taking certification courses to become LEED specialists.
Saving the planet is an admirable and worthy goal; however, in their rush to go green, many business owners may be overlooking an area that is rarely associated with the green movement: insurance.
Insurance policies are not stagnant contracts; they evolve over time to adapt to policyholder trends and preferences. Until about 50 years ago, most property policies were settled on an actual cash value (ACV) basis whereby the insured was typically paid the estimated market value of the damaged property. In the 1960s, the insurance industry introduced a second valuation method: replacement cost. In subsequent years, insurance for “increased costs — ordinance or law” was offered.
Today, the insurance industry is seeing yet another change in the property coverage arena: “green” insurance policies. These policies and endorsements are designed to protect expensive infrastructure systems not covered under most current property policies. Green policies may also pay for optional improvements to damaged properties to minimize energy usage.
Many property owners assume they will have the option to rebuild damaged or destroyed buildings with environmentally friendly materials. Unfortunately, some “green” materials are more costly than standard building materials, therefore your insurance company may not agree to the additional repair/replacement costs.
Conversely, the availability and pricing of “green” materials is improving rapidly therefore the cost differential may not be an issue in the near future. In the interim, consider purchasing “green upgrade” coverage which pays to replace damaged property with materials that are certified as environmentally sound and/or energy efficient.
As the green movement increases in popularity, many municipalities are changing their building codes to require “green” materials and construction methods. In these locations, a standard “building ordinance” or “increased cost” endorsement will cover the additional repair expenses due to “green” materials and construction methods.
Many green properties have water recycling systems that include expensive underground cisterns; however most property insurance policies exclude coverage for equipment or fixtures underground. Green insurance policies may include coverage for underground cisterns.
For property owners who are dependent upon a building’s LEED certification to maintain favorable tax, utility, and/or loan rates, make certain your property insurance policy will pay any additional costs required to restore a building’s certification level prior to a covered loss.
To eliminate this risk exposure, property owners should purchase “certified green building” coverage.
Some “certified green” policies pay to restore certification to the same level prior to the loss while other policies will pay to restore certification to the next higher level. Covered expenses may include the costs of hiring LEED-accredited engineers and design consultants, re-applying for certification, recycling renewable debris and flushing out reconstructed space with outside air. Some policies even compensate the policyholder for any loss of favorable tax, utility, and/or loan rates.
A common trend in many new construction projects is to include rooftop vegetation to enhance natural cooling, reduce utility costs and reduce carbon emissions. The cost for plants, shrubs and trees on some rooftop projects can easily exceed $100,000; therefore, make certain your property policy provides proper coverage for these assets.
If you are considering adding a rooftop garden to an existing building, discuss the project with your insurance broker before proceeding. Water damage and structural collapse due to improperly engineered vegetated roofs is a growing concern for many underwriters; therefore, the addition of a rooftop garden could make it difficult to maintain/obtain property insurance for your building.
When rebuilding after a major loss, one of the potential risks created by going green may be construction delays due to lack of available green materials, certified energy efficient systems and qualified contractors. For most businesses, the temporary loss of profits is difficult enough, but prospect of extended down time is not an option. Work with your insurance broker to re-assess your business continuity plans from a green perspective then modify your business interruption and extra expense coverages accordingly. Keep in mind that as the green movement grows, the potential for green-related construction delays becomes less of a risk.
Going green has a positive impact on the environment, but it can also have a negative impact on your risk position. Go ahead and save the planet, but talk to your insurance broker first.
Matt Cail is a Client Advisor with Sterling Seacrest Partners. He can be reached at 912.544.1927 or firstname.lastname@example.org.