In a paper that was released last month and authored by Janice Ochenkowski, Managing Director of Global Risk Management and John Schinter, President of Energy and Sustainable Services, Jones Lang LaSalle provides an overview of the challenges that green buildings have presented to the insurance industry, as well as a survey of how the industry has started to respond. Titled Insurance as Efficient as the Building: Insurance Coverage for Green Buildings, the paper focuses specifically on the green building insurance products offered by the Fireman’s Fund, which introduced a variety of coverage types for LEED- and Green Globes-certified buildings about a year ago. (Interestingly, Steve Bushnel, Product Director of Commercial Business for Real Estate Innovation for Fireman’s Fund, is quoted in the paper, stating that “[o]
The paper first points out the importance of accurately assessing green building value in order to correctly correlate it to the limits of coverage. For example, it’s imperative that property owners don’t overestimate the cost of green features that they hope to insure. An unnecessarily high value assessed for a particular green feature will result in a higher insurance premium. The insurer will not pay a higher amount in the event of loss because recovery is limited to the amount of the actual loss sustained. Unnecessarily high green insurance premiums could thus impact investors’ returns on a given project.
Specific issues that the paper identifies with respect to insuring green buildings include recertification costs to re-obtain a previously-earned LEED or Green Globes rating after major damage to the building and the revision of value schedules for business interruption and replacement costs after green retrofits. Extra expense coverage- which is offered in the Fireman’s Fund green building package- provides owners with funds to quickly restore a property in the aftermath of a loss. The paper uses the example of damaged clean energy equipment, where the coverage would pay for purchasing power from the utility until the equipment is back on line.
Fireman’s Fund also offers a specific coverage for green roofs; typically, landscaping is excluded from property insurance policies. The paper also points out that while debris removal is a standard policy inclusion, Fireman’s Fund offers coverage for the extra cost of sending debris to recycling centers rather than straight to landfills. The Fireman’s Fund package also provides coverage for building commissioning, as well as specific endorsements for non-green buildings that will upgrade interior personal property (equipment, furniture, and furnishings) to a green equivalent, as well as rebuild a totally destroyed non-green building to LEED or Green Globes standards.
Green building and rating systems like LEED and Green Globes have obviously presented the insurance industry with both a challenge and an opportunity that remain in relative infancy. It’s thus imperative that owners of green properties seek out knowledgeable insurance professionals and counsel familiar with both traditional insurance schemes and the twists of LEED and Green Globes when considering the type and scope of potential green building insurance policies.