When it comes to building green, we know the many environmental benefits of, say, tight envelopes, green roofs and thermal heating — not to mention commissioning it all to make sure it’s up to spec.

A select but growing number of insurers are recognizing it, too, offering discounted premiums on property insurance for green certified commercial and residential properties. It’s also become more common to find policies that offer green upgrades in the event of a loss, albeit at a slightly increased price to reflect the higher upfront cost of building green.

However, there is more to green buildings than the structure itself, and what lies within is often overlooked in an era of high-performance buildings and materials that make them possible.

Environmental risk

What’s often overlooked on a green building is, perhaps ironically, environmental protection. In the world of insurance, this isn’t referring to Mother Nature. It’s referring to the integrity of building materials, and often their relationship with indoor air quality and the attendant things that can hurt it, such as mold.

“Oftentimes owners and operators believe they have no environmental risk due to the fact their building is green and therefore do not need to protect themselves with environmental insurance,” says Chris Smy, environmental practice leader at Marsh, a commercial insurance broker. In the case of environmental risk, it’s not so much that the policies are different for green buildings, it’s that they’re overlooked.

And overlooking them can be bad because many property insurance policies have exclusions for these kinds of risks. Smy points to a common example: Many energy-efficient buildings require an airtight envelope, which generally keeps moisture out, but in the event moisture gets in, that same envelope can increase the potential for mold.

When considering policies, exclusionary language is the thing to look out for — anything that could prevent owners or operators from restoring their property after a claim based on green building materials. Smy also recommends checking that policies address risks that might be involved with the previous use of the site.

Property insurance

As demand for eco-responsible buildings has grown, so has property insurance dedicated to these buildings. Here, some property owners might find increased costs for their buildings, which Loretta Worters of the Insurance Information Institute says often has to do with the cost of replacement for specialized green materials.

“The typical insurance policy on a green building will cost more because of the materials used and development that occurs in the repair, replacement or upgrade process to meet local green building requirements, in addition to widely recognized standards,” she says.

The good news for existing green building policyholders is a trend toward discounted premiums for certified buildings. The reason behind that is data demonstrating that green buildings, despite concerns about unexpected environmental risks, tend to present less overall risk for insurers.

Worter points to Fireman’s Fund as a leader in the green insurance market, and not least because it was the first to offer specialized green building policies that offer discounts to residential and commercial buildings certified through recognized programs such as LEED. One of the reasons Fireman’s went in this direction is because of third party commissioning green buildings require is deemed safer.

“The most prominent cause of loss first would be electrical fires, second would be plumbing leaks, and the third would be envelope leaks,” says Stephen Bushnell, a senior director at Fireman’s Fund. “All of them are commissioned, so if that building is going to have that commissioned, they’re going to be greener and safer.”

In the case of Fireman’s Fund, a green policy helps building owners recover the full value of the green building, including vegetated roofs and underground equipment such as alternative water systems, as well as the cost of certifying the building. It hearkens to overall advice for green property owners. Duncan Ellis, March’s U.S. property practice leader recommends that LEED building owners read the fine print on standard insurance policies: “Policyholders insuring LEED-certified buildings need to make sure the insurance is on replacement cost of ‘like kind and quality’ and with A-rated or better insurance companies.”

This trend toward specialized green insurance policies now extends to a variety of products, and in 2009, the Insurance Information Institute said 22 companies offered more than 39 products and services dedicated to new green buildings and green building upgrades.

Although no commercial or residential building owner particularly likes the idea of claiming a loss on any kind of building, those dedicated to lightening their environmental load in the case of a rebuild on an ordinary building can take advantage of green building upgrade insurance. These policies charge a higher premium for building owners who want to go green in a rebuild. The increased premium tends to be commensurate with the additional costs associated with developing green buildings.

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Insurance for green buildings
When it comes to building green, we know the many environmental benefits of, say, tight envelopes, green roofs and thermal heating — not to mention commission