NEW YORK, July 14, 2009 - If it was about the fashion industry on Seventh Ave in New York, we could say that "green is the new black." But we are talking about the construction industry, where green has grown to mean more than environmentally friendly. It is the color of money for those involved in the green construction. And, to underwriters, "green" poses a whole new set of challenges.

Charles Kingdollar, Vice President, General Reinsurance and Thomas Taylor, General Manager, Vertegy, presented those challenges, as well as the barriers that exist in "green" construction to attendees of the IMUA’s 79Th Annual Meeting in Tucson, AZ.

Mr. Kingdollar began by clarifying, at least for today, what constitutes "green" in construction. He noted that the present definition entails everything from green roofs to alternative energy, windows, building materials; HVAC systems to water usage/efficiency. He said, "Today green construction is much like the Wild, Wild West -- anything goes."

But, he notes, there are many advantages to the term "going green." In addition to the billions of dollars offered for upgrades, retrofits and new construction by federal and state stimulus programs, "the real green" projects decrease operating costs by 8-9%, increase building values by 7.5%, increase occupancy rates by 3.5%, increase rents by 3%, and increase the owner’s ROI improvement by 6.6%. "Further, going green increases a corporation’s profile, and has a positive effect on everything from lowering absenteeism and increasing employee productivity to community awareness," he said.

The costs for new green commercial buildings vary, Mr. Kingdollar pointed out, depending on the LEEDTM rating. "A building can be rated as certified, silver, gold or platinum. As the rating goes up so do construction costs. For example, typical payback for a certified commercial building is under three years, whereas for a platinum certified commercial building it is over 10 years," he states.

Kingdollar referenced an October 2007 Building Owners and Developers Study to discuss the barriers to green construction projects. Far and away the biggest barrier was the additional costs involved (78%), while the second biggest issue [54% of respondents] felt it added too much paperwork. The other most significant barriers were too hard to find green contactors and costs were hard to justify (both at 39%).

Among architects, engineers and contractors, 41% believed that building "green" adds over 10% to the cost, and 33% had trouble getting desired green products.

In answering an attendee question whether green construction is here to stay or is a passing trend, Mr. Kingdollar referred to industry statistics that show 28 states now have in place renewable energy mandates for green construction. "As of March of this year, there are over 2,475 new commercial projects certified and another 19,500 projects registered. Over 1,875 homes have been certified and more than 9,650 registered. There are over 101,000 LEED accredited professionals and nearly 20,000 organizations and/or company members of USBGC. Green construction is here and it is a reality." he states.

With respect to LEED, Mr. Kingdollar discussed the various green rankings which consist of site development, energy efficiency, water efficiency, materials selection, indoor air quality, and innovative design and operations. There are points awarded for the various rankings, he notes, with certification being 45-50 points; silver, 60-74 points; gold 75-89 points; and platinum 90 points or more.

As open as green construction is, so are the underwriting considerations, notes Kingdollar. "We know of numerous types insurance coverages at present," he says. "And they are all over the board. They can include coverage for vegetated roofs; green alternatives for damaged materials, products or systems; added costs for debris cycling; recommissioning and certification fees; and extended period of restoration," to name a few. He then raised the rhetorical question as to which green building certifications are covered - LEED Certified? LEED or Green Global Certified? LEED, Green Globes or equivalent requirements? Certified by a governmental green authority?

A major consideration for the underwriters is whether or not green buildings pose a better risk or will some green innovations increase loss severity. "You will need a second, independent inspection of the heating system, plumbing and HVAC systems. Consider whether the building is certified or certifiable and what competing certifications are involved," he said.

Other considerations that should be taken into account include the fact that many green construction products use new products on non-proven installations which has the potential for faulty workmanship. "In addition, green services already generating claims include water leaks, mold from green roofs and cork flooring, elevated indoor pollution levels, failure of solar panels to generate the advertised amount of electricity," concluded Mr. Kingdollar.

In discussing sustainability and LEED, Thomas Taylor began with a definition of sustainable buildings. He defined these as "...high performance buildings that through their siting, orientation, design, construction and operation are highly energy efficient, have lower operating costs, are better for the environment in broad and specific terms, and promote whole health for their users and occupants with measurable results."

He then asked the IMUA attendees by show of hands if attendees thought there was a difference between a project that is LEED registered and a project that is LEED certified. "Most assuredly yes!" he said.

"The basic difference is if you fill out a form and pay your fee, you have a LEED registered project. Not so easy with the certification process." Mr. Taylor then stated that between 2000 and 2005 only 167 buildings were certified by the USGBC, 1,772 projects registering but failing to complete the certification process.

To be granted certification, there are a number of steps that must be undertaken and depending on the level of certification -- certified, silver, gold and platinum - there are more requirements to fulfill. "Certification is a two-phase process that includes design and construction."

Mr. Taylor told the audience that it is critical that there be a complete understanding of the project. He said, "It is imperative that all parties understand the importance of setting goals for the project. Just because the specifications calls for LEED or other certification, it does not necessarily mean the owner knows exactly what they are requesting. That is why it is so important for every construction team participant to dig deep and find out the motivation behind the request for certification. Knowing the project goals can help you bring value to a client."

Due to the burgeoning market for green construction within a fast-paced environment, Mr. Taylor noted that software programs are not keeping pace with industry growth. As a result, LEED forms are not always the most current. "For underwriters, what you don’t know will probably hurt you. You need to have an understanding of the credit point criteria and their prerequisites. Points can be lost by the disregards of an inspecting team member," he said.

He concluded by noting that once a building is certified, it is certified. He told the group that the most popular certification, prior to the economic downturn, is silver. "And, it is anticipated that the industry will continue to become more and more complex as more and more construction projects go green."

IMUA is the national association for the commercial inland marine insurance industry. IMUA serves as an industry voice of its member companies representing approximately 90 percent of all commercial inland marine insurers in the U.S. The Association provides its members with comprehensive educational programs including research papers and bulletins, industry analysis and live/web seminars. IMUA was founded in 1930.