OGCA 4th Annual Construction Symposium

LEED GREEN

April 2007

St. Gabriel’s Parish Fenn’s First LEED Registered Project

• Invited to participate in several development committee meetings.

• Allowed to contribute risk and insurance advice and suggestions throughout.

• Very positive working together environment. • New Building – standard Builder’s Risk and Wrap Up

Liability Insurance. No innovations. • A great example that not all projects have to be large to

be LEED registered. • A positive experience to witness the co-operation level

between all parties.

LEED/Energy Reduction

• In a report from August 2005 over 200 projects in Canada were LEED Registered. In 2007 over 450 Projects are LEED Registered. 60 are presently shown as LEED certified.

• In the United States in 2007 more than 3200 buildings earned Energy Star rating for powerful cuts to energy bills/greenhouse gas emissions.

• 575MM sq feet now save US$600MM annually in lower energy bills. The equivalent of 11 Billion pounds of greenhouse gas emissions in turn equivalent to emissions from almost 900,000 vehicles.

LEED/Energy Reduction

• The 2006 beneficiaries of the Energy Star (US) rating included 320 supermarkets, 320 office buildings, 200 K12 Schools, almost 90 banks, courthouses, financial centres, hospitals, hotels etc.

• There are obvious environmental and energy savings advantages to sustainable design and construction and evidently financial benefits too.

• The Insurance industry is one of the largest real estate owners in the world.

• What then is the Insurance Industry’s role in LEED/Energy reduction?

Energy Efficient and Renewable Energy Products/Services

Risk Management Advantages • Efficient refrigeration – maintain required temperatures longer in

absence of power – reduces perishable goods loss exposure• Energy efficient windows – lower breakage from fire – reduces

spread; resistant to thieves, windstorms. • Insulated water pipes – an insurance loss leader - retrofit saves

energy and reduces freeze damage. • Duct Sealing – reduces pressure imbalances – less fire/carbon

monoxide/radon gas exposure. Reduces Ice Dam formation on roofs.

• Urban Heat Island Migration – Lowering urban temperature using solar reflectant roofs and roads and tree planting lowers air conditioning costs. Lowers heatwave death toll also.

• Electric to Gas Cooking - #1 cause of house fires in Canada per Alberta Fire Commissioner – 65-75% of kitchen fires due to cooking oil. 4 times more common in homes with electrical vs. gas stoves. Gas is almost twice as energy efficient as electricity.

Energy Efficient and Renewable Energy Products/Services

Risk Management Advantages

• Building Commissioning – improper work performance leads to litigation, business interruption and contractor callbacks.

Through commissioning, quality control increases during design, construct and start up. Ensures all systems function as they should – reduces plumbing, heating, electrical loss expectancy.

Commissioning is perhaps the most important risk management measure used to attract the attention of Insurers to embrace Green/LEED.

Insufficient Insurers are using Commissioning to support risk acceptability/lower rates, yet it should convert to lower risk of loss.

Proven Perils Reduction through use of Energy Efficient &

Renewable Energy Technology • Extreme temperatures reduced • Fire & Wind Damage reduced • Home/Workplace Indoor Air Quality Hazards/Safety

Hazards reduced • Ice and Water Damage reduced• Outdoor Pollution/Environmental hazard reduction • Power failures reduced• Theft & Burglary Damage reduced

INSURERS RISK OF LOSS – REDUCED??

Proven Positive Impact to Insurance through use of Energy Efficient & Renewable

Energy Technology

• Boiler & Machinery • Builder’s Risk • Business Interruption Insurance.• Commercial Property • General Liability incl. Completed Operations, Products

Liability, Contractor’s Liability. • Health & Life Insurance • Professional Liability • Service Interruption • Workers’ Compensation.

Current Insurance Industry Involvement:

Energy Efficient & Renewable Energy Technology

• Public education – e.g. distributes risk management information, energy savings advice.

• Financial Incentives – e.g. public energy efficient premium discounts; professional liability courses – attendance discounts.

• Specialty products – e.g. Energy Savings Insurance, “Naturesave”, inspection based indoor air quality products.

• Investment – insurers involved in venture capital funds for sustainable/energy efficient developments.

• Inspections & advice – e.g. Building inspections including advice on energy efficiency/indoor air quality; infrared thermography for problem detection.

Current Insurance Industry Involvement: Energy Efficient & Renewable Energy Technology

• Codes, standards – e.g. Canadian Institute for Catastrophic Loss Reduction endorses improved enforcement of building energy codes. More Insurer involvement required.

• Research & Development – e.g. FM Research Corporation and UL yet to step significantly into energy technology. Significant efforts in roofing Public Private research – especially how energy efficient roofing may enhance roof structural integrity in wind. US and Canada.

• Own energy management – e.g. Insurers own significant real estate worldwide. Many have in house energy management programmes. Can lead by example.

• Carbon Insurance - covers Kyoto-related risk in connection with carbon credit purchases.

Insurance Industry ChallengesEnergy Efficient & Renewable Energy

Technology • Benchmarks – evidence of risk reduction benefits

lacking. • Insurer involvement in Green/LEED technology and R&D

is limited – learning curve. • Potential downside of improper use of Green/LEED

technology. • Insurer appetite, or lack thereof and class underwriting –

not all will take interest due to specialties. • Building Regulatory issues. • Inappropriate Customer perception “deep pocket”.

Failure to understand purpose of insurance.

Insurance Industry ChallengesEnergy Efficient & Renewable Energy

Technology• Insufficient “point of sale” involvement, existing personal

and commercial product improvements needed – especially basis of valuation.

• Potential enhanced Professional Liability exposure to design team – caution required in promoting Green/LEED to owners. May attract professional liability claims.

• Contractor failure to perform – surety exposure. • Close control of “change orders” to avoid deviating from

LEED goals. • Is there a professional liability exposure now by NOT

building LEED? • Insufficient insurers involved with Canada Green

Buildings Council.

Conclusion• The Insurance industry is involved in a large way in Green

Buildings/LEED and in related specialty products. • Only one insurer, Fireman’s Fund (USA) is known to have a

discounted suite of products specifically designed for LEED certified buildings allowing to rebuild AND replace with green alternatives.

• More insurers need to revisit existing policy wording and revamp to align with green certification processes. Joining Canada Green Building Council and other organizations will help.

• Owners of existing “standard” buildings, new “standard” buildings and new LEED buildings all need a broader range of extensions to move with and respond to the changing construction industry as Green/LEED evolves.

• Insurance rebuilds billions of dollars a year. It also owns a significant worldwide % of real estate holdings. In doing so it should also play its part more aggressively in supporting global initiatives that contribute to the environment in a more positive way.

References Numerous materials were sourced to develop this brief presentation:• The Canada Green Building Council http://www.cagbc.org/index.php• The Insurance Journal – October 16, 2006 – Fireman’s Fund Introduces Green Building Coverage• ENERGY POLICY, Risk transfer via energy savings insurance – Evan Mills – Jan 25, 2002 – Elsevier Science

Ltd. • ENERGY POLICY, The Insurance and risk management industries: new players in the delivery of energy –

efficient and renewable energy products and services – Evan Mills - 2003 • North Bay Business Journal – Nov 20, 2006 – Insurance products for Green Buildings Takes off – Kindler, Dorsey • Fireman’s Fund Insurance Company – Stephen Bushnell, Product Director Commercial Business Real Estate

Innovation. • Pro Demnity Insurance Company – February 2006 – Sustainable Design /LEED from an Insurer’s Risk

Management Perspective – John Hackett, OAA, FRAIC• Business and Management – December 2005 - Green Design Can Cause Red Ink - Frank Musica• Daily Commercial News – Various articles. • The Globe & Mail – Various articles. • The Toronto Star – Various articles. • Royal & SunAlliance Insurance Company of Canada – Dan Johns • Olga Gil Research

No references should have been omitted but if I have it was unintentional and my apologies are extended.

Contact Information

Simon J. Fenn, CIP President

Fenn & Fenn Insurance Practice Inc. 905 836 6066

simon@fenninsurance.comwww.fenninsurance.com