Green Insurance Market: Competitive and Growing

The green insurance market is a good market in every sense of the word. The green building industry is growing. The insurance market for green buildings — both residential and commercial property coverage — is also growing. And for a new and emerging industry, the claims history for green insurance coverage has so far proven to be what was expected.

“The green building market is very strong,” says Steve Bushnell, a senior director at Novato Calif., based-Fireman’s Fund Insurance Co. “New construction and renovation took a little bit of a hit in 2008-2012 but it’s rebounding well.” Bushnell believes that green building is the future. “Green buildings will be the way buildings are built or renovated in the future.”

By 2015, an estimated 40 percent to 48 percent of new nonresidential construction by value will be green, equating to a $120-145 billion opportunity, according to the U.S. Green Building Council, the organization responsible for the LEED green building program of which Bushnell serves as a board member.

“There’s 2.1 billion square feet of LEED certified space now and over 16,000 commercial buildings have been LEED certified,” Bushnell says. Another 50,000 commercial properties are registered by LEED and will be certified when construction is complete, he adds.

Residential properties are also gaining in the green movement. McGraw Hill Construction estimates that the green market for residential starts could be as high as 20 percent of the market by the end of 2013. That compares to just 2 percent of residential starts in 2005 that were green and 6 percent to 10 percent in 2008.

The green construction movement has attracted many in the insurance industry looking to cash in. That competition has slowed the growth of Fireman’s Fund’s own green products. While Bushnell and Fireman’s Fund have been credited as the originators in the green insurance movement, they are no longer alone in this space.

“We are meeting expectations,” Bushnell says, “but we are not growing at the rate that we were back in 2007-08 after we launched our product simply because our competitors have pretty much all developed their own products.”

Green insurance products, in many ways, have gone mainstream, Bushnell says.

While more green insurance products have hit the market in recent years, the coverage provided is not always the same, says Travis Pearson, president of CMR Risk & Insurance Services Inc. based in San Diego.

Pearson, who heads up his agency’s real estate practice, says nowadays almost every insurance company offers some type of green upgrade coverage but their offerings vary.

“Some have a small sublimit where it’s barely anything, maybe $10,000 or $25,000, where other companies like Fireman’s Fund, ACE, Zurich, Chubb or Great American have much higher limits to offer in green upgrade coverages.” That type of green upgrade coverage is more readily available.

Green coverage lacks capacity in areas such as tax incentive reimbursement coverage and business income, often needed for an extended period of restoration time due to green upgrades.

Another coverage owners of green commercial properties might need is recertification expense reimbursement, he says. “The market is more limited for some of those financial expenses and not just the hard costs of upgrading.”

The biggest hurdle Pearson encounters with his real estate clients when it comes to green insurance coverage is the lack of information.

“There’s mass confusion in the industry,” Pearson says. “Even companies that own these green buildings — even those that own LEED certified properties with vegetative roofs and the whole works — a lot are not aware that these types of coverage really exist.”

Green buildings have only been around for the last 10 years or so and many property owners do not even know they need green insurance coverage for their green buildings.

Also, not many green property owners have had to file a claim.

“Most real estate owners haven’t experienced a loss, and aren’t aware that if my platinum or silver certified building has a major loss they have to pay an engineer to come in there and recertify all the materials. They don’t understand the replacement costs of the uninsured expense,” says Pearson.

Another hurdle in selling green coverage, according to Pearson, is that the industry doesn’t have a hard-and-fast way to quantify purchasing the coverage. Insurers may offer a discount for making an apartment building “smoke-free,” as an example.

“The end consumer wants to know that if I do this (green upgrade), this is what will happen to my premium but at this point we don’t have the ability to tell them that,” Pearson says.

“Right now the only thing we can do from an agency perspective is educate our clients,” he says. If insurance companies could help in that education the results would be better for consumers, agents and insurers, he adds.