Construction insurance update: Green building is red hot and so are the risks

Posted by Noff Colabella on Wed, Dec 02, 2015 @ 11:41 AM

insurance-for-green-buildingFor the construction industry, it’s a good time to go green. According to the World Green Building Trends 2016 survey by Dodge Data & Analytics, green building is doubling every three years. Survey respondents projected that more than 60 percent of their building projects would be green by 2018. And Navigant Research estimates the worldwide market for green building materials will be greater than $254 billion by 2020.

What’s driving this demand?
Customers want green! Forty percent of survey respondents listed client demands as a driver for the green building boom. It’s clear that commercial and residential clients are increasingly realizing the benefits of living and working in environmentally sensitive buildings, such as:

  • Healthier residents and employees
  • Reduced energy and water consumption
  • Support of sustainable business practices
  • Higher return on investment

But for builders, going green has immediate and ongoing risks – and the rules are constantly evolving.

Green building costs can be three to five percent higher right from the start. Then you have to worry about the availability of specific green materials, which can mean material substitutions, project delays, and higher costs. You’ve got standard of care issues, LEED certification, and the possibility of financial loss if your project doesn’t achieve green certification or targeted energy savings levels. And don’t forget federal, state, and local regulations for meeting green building standards, which only add to your risks.

With so much at risk, you shouldn’t even consider going green unless you keep up with changing laws and regulations. Here are some of the latest developments that could impact your projects – and your profits: 

  • Changes to LEED. In October 2014, the U.S. Green Building Council (USGBC) announced that users can register projects under the LEED 2009 rating system until October 31, 2016, an extension from the original LEED 2009 registration date of June 27, 2015. The rollout of LEED v4 includes substantial changes to make it more aggressive, more specialized, and more user friendly. Under the Minimum Energy Performance prerequisite, projects previously required to demonstrate a 10 percent improvement in the proposed building performance rating for new buildings now must show 18 percent improvement.
  • Changes to the International Green Construction Code (IgCC). The 2015 IgCC was released in June 2015 and contains a number of changes, from clarifying unclear information to updating provisions to reflect the latest and best science. Several important proposals were approved, including Outcome Based Compliance, the updated Zero Energy Performance Index (zEPI), clarification of the requirements for onsite renewable energy systems, and modifications to increase the effectiveness of existing Demand Response provisions. 
  • green-buildingSolar and Renewable Energy Certificates (RECs). Under EPA rules, a solar energy system and the electricity it produces are two separate commodities, and each can be sold independently. The problem? Let’s say you install a solar energy system on the roof of your business, and you advertise on your website and to all of your friends, family, and customers that you’re creating your own solar energy. You’re getting credits on your electric bill and feeling good about being environmentally conscious. But if you don’t own the RECs for your system, you could be in direct violation of Federal Trade Commission rules – and that could spell legal trouble.

Green construction is flourishing, and so are the risks
If you’re involved in green construction, take time to review your projects to see how these changes impact you. And don’t forget to partner with an expert. With more than 150 years’ experience in the New York construction industry, BNC can help you take advantage of the red hot green building market without getting burned.

Tags: construction risk management, green construction, green building