Expert Risk Articles

Insurance for Ecological Building

A "Green Clause" for property coverage provides a joint platform in order to tackle climate change.

Turn off your lights, use less heating, take public transportation, switch to energy-saving bulbs and so on. By now, people are used to all the tips for saving the environment, and many have decided to put in that extra effort to combat global warming.

Builders and businesses, too, are given much good advice above and beyond strict legal guidelines, and they are often eager to design their structures with the environment in mind even if it means additional costs. After all, studies show that office buildings account for 70% of electricity consumption and almost half of energy use, carbon dioxide (CO2) emissions and raw materials use in the industrial world. But if loss events occur, these structures are often only covered to restore them to the level the law requires.

Like most other industries, insurers are responding to global warming. They work to reduce not only their own "carbon footprint" but also that of their industrial clients. "We don’t want to limit our response by withdrawing from areas with increased wind or flood exposure like coastal regions," says Tassilo Hummel, Global Head of Property Insurance at Allianz Global Corporate & Specialty (AGCS).

Green building minimizes consumption and effluence

Ecological building

To support activity among clients, AGCS recently began promoting the advancement of "green buildings". Green buildings are built or remodeled according to environmental recommendations to improve air and water quality, reduce solid waste and conserve natural resources. But they also provide economic benefits: reduced operating costs, enhanced asset value and profits as well as improved employee productivity.

To do this, the insurer has expanded its property coverage to include "certified green buildings coverage" and "green property upgrade coverage". The former protects buildings that are green-certified, while the latter even covers those buildings that will be rebuilt to be environmentally friendlier after a loss.

Green clauses in insurance policies set environmental standards or refer to environmental standards in local markets that are considered industry standards. "The key to this coverage is the upgrade element. After an insured suffers a loss, we want to direct customers to environmentally friendly products," says Sarah Heise, a property practice leader in the US market for AGCS.

This kind of cover was first pioneered at Allianz by Fireman’s Fund, an Allianz general insurance subsidiary in the United States. In 2007, Fireman’s Fund introduced its "Green Building" program for commercial property, and this summer green clauses were rolled out for private homes. Going green, or better building green, is rewarded by the company.

Good sense, best practice

The approach also makes good business sense. Green buildings are designed with state-of-the-art specifications for electric systems, heating and air conditioning systems. Plus, they go through a more rigid commissioning process to assure that the systems have been installed to manufacturers’ expectations. Aside from better efficiency, AGCS expects a better insurance risk from such procedures. Commercial property losses frequently come from electric fires, heating and air conditioning fires and plumbing leaks that arise when these infrastructure elements are not regularly renewed.

"Right now, we are working with AGCS units in local markets to identify standards, from building materials to the use of low-energy equipment," says Hummel and adds: "Different regions have different awareness levels of climate change and what can be done to tackle it. Our goal is to bring them to a global standard."

Download "Global Risk Dialogue" fall 2008