The Evolving Impact of Green Building

by Jim Loveland, President and CEO, Xactware Solutions

Consumers looking to build or remodel are finding more and more reasons to go green. New legislation provides incentives for green building, and some property insurers are offering discounts for green buildings or providing coverage that helps owners upgrade to green techniques and materials when repairs are made.

The use of green building products is projected to grow from $2 billion in 2005 to $60 billion by 2010, according to the 2007 McGraw-Hill SmartMarket Report on Attitudes & Preferences for Remodeling and Buying Green Homes. Although the financial market turmoil since the report was issued is likely to make a dent in that projection, it is clear that green building products will appear in more and more claims and that the impact on claims costs and underwriting is still evolving.

Green Legislation

Green power systems can include solar panels for energy efficiency.

Federal, state, and local governments are enacting or actively considering legislation that provides incentives for builders and owners of green buildings. Some examples of federal legislation recently enacted include the G.R.E.E.N. Act (Green Resources for Energy Efficient Neighborhoods), which gives incentives to lenders to provide lower interest loans to borrowers investing in energy efficiency. The New Direction for Energy Independence, National Security, and Consumer Protection Act provides an array of energy-related standards and programs including funding for home energy conservation programs and building retrofits.

State legislation, such as The California Green Building Standards Code, set to take effect in early 2009, targets energy efficiency, construction waste, and green building materials and design.

Budget-strapped cities often can’t afford to fund green programs. Instead, many are offering creative no-cost incentives that include fast-track permitting for green buildings and more flexibility on zoning requirements such as height restrictions.

Green Incentives from Insurance Carriers and Others

Some insurance companies are also providing incentives to build or rebuild green. These programs not only provide discounted insurance premiums for owners of green buildings but also have incentives for policyholders that have experienced a loss to reconstruct their homes with green building materials and systems.

Many utility companies offer rebates for green products and retrofits. They range from incentives to replace less efficient furnaces and air conditioners to rebates for added insulation and green power systems such as solar panels.

Deciding What Green Means

The green roof on this office building uses vegetation and soil,
as well as green technology in the form of solar panels.

Most builders are now working with some level of green materials or techniques in nearly all structures they build, remodel, or repair. But until recently, no clear standards existed. The U.S. Green Building Council (USGBC) started work on its Leadership in Energy and Environmental Design (LEED) certification program in 1996. The National Association of Home Builders (NAHB) also provides a similar certification program. Both programs offer comprehensive green building guidelines that include everything from managing waste to using rapidly renewable materials, recycling, site location, site development, energy efficiency, green power, indoor air quality, and much more. When remodeling, the guidelines stress reuse of materials and “deconstruction” instead of demolition to help recycle and reuse as many materials as possible.

Design and engineering are important parts of the process. Although green building is generally considered to cost more than traditional building, some studies suggest many of the additional costs can be reduced or eliminated with good design. For example, architects can help minimize waste with designs that match typical units of measure for the materials used. With careful engineering, a home can be framed with less lumber than has typically been used with traditional framing techniques and still be equally strong.

With these guidelines, many materials that may not have been considered green in the past become part of a green structure because of the way they are used. Engineered lumber was not introduced as a green product but is now generally considered to be green because its manufacture leaves little waste and it can now be ordered to specific lengths that generate little on-site waste.

Unanswered Questions

Although much progress has been made in green certification for a variety of buildings types, many questions remain for repair work. For example, LEED provides recycling and waste recovery guidelines for both new construction and remodeling. No such guidelines exist for repair work where the remodeling waste disposal guidelines would often be unrealistic.

As green building becomes more common, underwriters are increasingly considering a variety of new issues for policies that do not have special green coverage. When a green building is damaged, is the cost for a LEED-accredited professional to consult on the repair covered? Are recertification fees covered? What does “like kind and quality” mean when a home was originally built with lumber from a mill certified by the Forest Stewardship Council? Which of the variety of green certifications are accepted as standards, and which are not?

Those questions may be easier to answer when homes are LEED-certified. But as green building becomes more common and the lines blur between green homes and traditional homes, the complexity of the issues and the need to document them continue to grow.

Tracking Important Changes in the Market

Green building is just one of many trends in construction that are important for underwriters and claims managers. The turmoil in the financial market and the impact of an active storm season are among the many factors influencing construction costs. Xactware’s yearly Property Reports and real-time Industry Trend Reports give professionals detailed information about all types of trends. As green building products and practices become more common, that information can be invaluable to risk managers and claims supervisors looking to make informed decisions on this rapidly changing and growing segment of the construction market.