Operations: Green Insurance

Protect your property’s reputation in the event of decertification

By Jeffrey Steele, Contributing Editor

Building and operating green multifamily buildings is not only a sound practice from a societal standpoint, it is a smart move from a business point of view. Increasingly, owners and managers view buildings that are green as both more cost-efficient and more attractive to potential renters and buyers.

Clearly, a green reputation confers benefits. But it also carries risks. When a green building is the focus of adverse publicity, for instance, a company may experience a reputational crisis. Dealing with that crisis, and restoring the company’s good name, is the idea behind green reputation coverage.

While green reputation insurance isn’t new, insurer AIG has long had an interest in protecting owners and property managers who have determined their buildings will be green. So says Lance J. Ewing, vice president, industry practice group leader, for real estate, hospitality and leisure at New York City-based AIG.

“Whether they’re retrofitting existing buildings to be green, or building from the ground up, AIG is there for them in serving their insurance needs, and not just green reputation needs,” he says. “The whole concept in offering this coverage is to give an additional endorsement to protect the green building.”

The reputation coverage AIG offers is akin to crisis response insurance, he adds. In a cyber-security threat situation, or an active shooter situation, a building owner or manager will have a crisis response need. If a building is decertified as being green, management may also have a crisis on its hands, one resulting from the adverse publicity surrounding decertification.

AIG’s green reputation coverage promises “counsel, personnel or services to restore a management company’s or owner’s reputation,” Ewing says. “We can turn bad situations into great situations for building owners or management companies when there’s negative publicity related to green buildings themselves.

“The green status of a building is another arrow in a company’s quiver. This insurance coverage is sort of a ‘sleep at night’ coverage level that will respond to a crisis or any negative publicity that may arise.”

Any company with a building that is green, and meets certain underwriting standards to make it eligible for this endorsement to a liability-casualty policy, may be a potential candidate for the insurance coverage, Ewing says.

The green reputation coverage provides up to $50,000 in coverage per occurrence for green-related crisis management. Response teams dispatched to serve green building owners or management companies are trained and experienced in green building crisis management issues, he says.

“This policy bolts on to the casualty coverage to provide green crisis response,” Ewing says. “This type of coverage would typically not be in a standard, off-the-shelf liability-casualty policy. In today’s heightened media and social networking environment, this is a way to know you have an ally who is at the ready to assist you in a green building reputation crisis.”

Is it a fad?

According to Steve Sachs, director, real estate and hotel practice with New York City-based Willis North America, the world’s third largest international broker of insurance and reinsurance, green reputation coverage is better suited to some than others. Those for which it would be a more logical fit include developer-owners that heavily promote and position themselves as green, and trumpet their green standing as a big part of their appeal to buyers or renters.

Another might be operators who start their conversion to green with green cleaning and maintenance products, and then move on to replace or modernize their operating systems in an attempt to make the asset green, Sachs says.

Green reputation coverage will provide to those who are insured specified sums (Sachs cites $50,000 to $150,000) to deal with crisis management.

“They will line you up with the top talents in crisis management and in responding technically and otherwise to challenges to your green reputation,” he remarks, adding, “You cannot have this as a stand-alone coverage. You have to be purchasing your liability coverage from the same insurer, and then the green reputation coverage would be an endorsement policy to that coverage.”

Sachs doesn’t see green reputation coverage as a fad destined to pass quickly from the scene. “These are like bells and whistles for the insurer offering green reputation coverage,” he says. “They’re trying to give you another reason to do business with them, and I don’t believe they are going to be charging that much for it. If they don’t charge that much for it, people will buy it. There’s an old risk management adage that goes, ‘Don’t risk a lot for a little.’”

Super-green views

How does the super-green build-to-hold development community feel about green reputation coverage? To find out, MHN turned to one such developer, Rockville, Md.-based The Tower Companies, which pioneered the construction of USGBC LEED-certified residential and commercial properties. Ninety percent of The Tower Companies’ properties are LEED certified.

Jeffrey S. Abramson, partner in The Tower Companies, observes that while his company has not seen green reputation coverage per se, such an insurance product, “doesn’t seem to offer anything substantially different than what’s offered in a well architected cadre of insurance policies set up to consider the risks of today’s real estate owner with ‘green coverage.’

“Standard pollution combined with broad general liability and a green building upgrade endorsement will get you there for the most part. You may not get a ‘restoration of reputation,’ but that can be built into a good directors’ and officers’ policy, and may be more germane in the public sector.”

The Tower Companies believes insurers comprehend the merits of building green, and have offered green products to cover forward-thinking real estate owners and developers. Abramson adds, “Tower was one of the first purchasers of green building insurance coverage in the region.”

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