Environmentally friendly - Zurich looks at the risks and benefits of Green Construction at 2014 ANZIIF Claims Convention
Mervyn Rea says a green building can be defined as one that gives priority to efficiency of resource use - energy, water, and materials. It is designed to reduce building impacts on human health and the environment during the building's lifecycle, from blue print to eventual demolition - leaving a lasting social, economic and environmental legacy.
Through careful design of building infrastructure, materials and services, carbon emissions in buildings can be neutralised. By harvesting and recycling grey and rainwater, water consumption can been reduced to a minimum, and traditional, costly energy required in buildings can be offset by renewables.
From an investor point of view, we are starting to see Green Star Rated Buildings in Australia enjoying an average 5 per cent higher rental income and 12 per cent higher value.
So what does Green Construction mean for the insurance industry from a risk management perspective? The top five concerns for insurers include:
- Construction Materials - Different construction materials have different qualities and react differently in low or high impact fires. It’s important to understand these varying characteristics to protect the people in the buildings and firefighters when a fire happens, and to ensure greater business continuity.
- Architecture and design - New architectural elements like roof top gardens have a potential to retain large quantities of water which may impact the structure of the building through wind and weight load, and also a risk of water penetration. This means larger exposures for property and liability.
- Plant and Equipment - Increasingly, sources of renewable energy are placed on rooftops - with risk of property damage from storms, wind and hail to the equipment and potential business interruption exposure (i.e. loss of power). There are also concerns relating to stored energy from power generation (solar panels, wind turbines etc) that could increase risks for firefighters, and delay effective fire fighting. Retrospectively installed solar panels may also cause additional load on roofs beyond their original intended design. From a liability point of view, flying debris in extreme storms can cause third party damage or injury and increase the property owner's public liability exposure.
- New Technology - Supply Chain - If demand for Green Buildings and associated technology outstrips anticipated supply, construction and refurbishment projects could be delayed, as well as any downstream reinstatements and repairs as a result of damage. Longer lead times need to be reflected in indemnity periods.
- Professional Indemnity Exposure for Architects, Designers, Planners, Construction Industry - There is heightened exposure to Professional Indemnity claims, in case of errors or mistakes that result in costly delays to construction projects, or in the case that actual performance is not as anticipated in the design, failing to meet the criteria of Green Star certification. Further, contractors responsible for maintenance of green buildings may require Professional Indemnity for the first time, for the case where poor maintenance decreases efficiencies, leading to Green Certification requirements not being met.
- Other considerations - Regular reviews of a building’s value are important to keep the sums insured up to date. Values of green buildings tend to be higher than traditional buildings, even if building costs may be lower. Extra costs of reinstatement should be monitored carefully, as there may be additional requirements imposed on Green and non-Green building repairs in the future. Also, property owners should check cover for recycling of debris, which is a contributing factor to Green Construction ratings. Removal of debris, which is a widely available cover, should be the last resort.
As Mervyn Rea says, buildings can enhance the health of individuals, whole communities and collectively, the environment. "We can avoid wasted resources and unnecessarily expensive energy costs. We can also for the first time predict and plan the lifecycle of a building and ensure it is in harmony with man and earth."
Steven Kopti stresses that insurance companies play an important part in enabling innovation, such as Green Construction. By understanding the risks involved, insurance policies can adapt to the changing needs of property owners, construction companies, architects, designers and operators involved.
"At Zurich, we have responded to the challenges. Our Better Green coverage for Strata and Aged Care ISR policies are a case in point. Although each offering is slightly different the main benefits include air quality management, building commissioning expenses, debris recycling, professional services and recertification costs."
"In the Aged Care ISR product these costs are sub limited, in addition to coverage elsewhere in policy. The Strata is slightly different being limited to 15% of the normal costs of repair or reinstatement for any one event and in the aggregate any one period of insurance."
For further information contact:
Head of Marketing, Communications & Customer, General Insurance
Zurich Financial Services Australia Limited
Level 3, 5 Blue Street, North Sydney, NSW 2060
Phone: +61 (02) 9995 1368
Zurich Insurance Group (Zurich) is a leading multi-line insurer that serves its customers in global and local markets. With about 55,000 employees, it provides a wide range of general insurance and life insurance products and services. Zurich’s customers include individuals, small businesses, and mid-sized and large companies, including multinational corporations, in more than 170 countries. The Group is headquartered in Zurich, Switzerland, where it was founded in 1872. The holding company, Zurich Insurance Group Ltd (ZURN), is listed on the SIX Swiss Exchange and has a level I American Depositary Receipt (ZURVY) program, which is traded over-the-counter on OTCQX. Further information about Zurich is available at www.zurich.com.