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A number of factors go into the algorithm for calculating insurance premiums for homes and businesses: the square footage of the building, the insured's claims and credit history, the location of the building, the age and type of the building, and many other factors are evaluated before a quote can even be offered. The ultimate goal of examining all these factors? An estimate of insurance risk.
In most cases, risk factors are fairly obvious. An older home with an outdated roof, siding and systems typically costs more to insure than a new home because insurers associate older buildings with a greater risk of sustaining storm damage. A business in a neighborhood with high crime rates or in an area at higher risk for natural disasters may require higher insurance premiums. A homeowner who owns a pit bull may likely pay higher premiums than one who owns a poodle because of higher liability risks.
Policyholders attempt to minimize their risks of filing expensive insurance claims in dozens of ways, but one of the most effective and large-scale strategies is to build sustainably and engage in a greener lifestyle . This Resource Page will show how sustainability can translate to safety and less risk, both for the homeowner and the insurance provider.
This calls for an integrated, synergistic approach that considers all phases of the facility life cycle. This approach, called "sustainable design," supports an increased commitment to environmental stewardship and conservation, and results in an optimal balance of cost, environmental, societal, and human benefits while meeting the mission and function of the intended facility or infrastructure. To create a successful high-performance building, an interactive approach to the design process is required. It means all the stakeholders—everyone involved in the planning, design, use, construction, operation, and maintenance of the facility—must fully understand the issues and concerns of all the other parties and interact closely throughout all phases of the project.
A. Updated, Energy-efficient Roofing
The Insurance Institute for Business & Home Safety estimates that roof damage is present in as many as 95% of wind and water-related losses. The average cost of an insurance claim for those losses is more than $6,000 according to the Insurance Information Institute (III).
Updating roofing systems every few years is an excellent strategy for minimizing the risk of damage, and it is often one of the first features to "go green" when it comes to sustainable building. For example, when a home or business owner chooses to install a more energy efficient metal roof, he also could help reduce his risk of expensive property damage and insurance claims from natural disasters. Aluminum and steel are two of the toughest, most durable roofing materials available and have been proven to better withstand strong winds, heavy rain, and even devastating hail. Buildings that use recycled materials such as these on at least 75% of the roof's surface are therefore significantly safer and considered much lower risks to insure.
B. Updated Plumbing and Fixtures
Water damage claims account for almost a fourth of all annual homeowners' claims nationwide, and losses resulting from toilet failure alone typically range from $2,000 to more than $10,000 per claim.
Since nearly 90% of all water claims are attributed to toilet failures in buildings 10 years or older, insurers typically consider these to be higher risks than buildings that utilize new or updated plumbing systems and fixtures. As sustainable technology improves, most green-certification programs raise the bar for water efficiency. Therefore, green buildings typically utilize upgraded plumbing systems that are significantly less likely to suffer burst pipes and newer fixtures that are also lower risks for slow leaks and costly water damage.
C. Modern Electrical System Wiring
House fires are one of the most common and expensive insurance risks a building could face. Every 82 seconds, a residential fire breaks out (according to the National Fire Protection Association), and electrical distribution or lighting equipment is involved in an average of 19,000–25,000 fires per year. The III reports the average losses to be around $30,000 per fire-related claim.
An out-of-date or overloaded electrical system significantly raises a building's risk of fire-related insurance claims. Therefore, insurers typically consider buildings that still rely on fuse boxes, ungrounded power outlets, or wiring that is more than 10 years old to be more dangerous and more difficult to insure than buildings that implement updated, efficient systems and Energy Star Appliances approved by the U.S. Department of Energy and the U.S. Environmental Protection Agency.
D. Energy-efficient HVAC
The NFPA reports that faulty heating and air conditioning systems are the second-leading cause for house fires (behind only cooking), accounting for 15% of reported claims in years past.
Leading factors contributing to ignition in home heating equipment:
- Blocked system/failure to clean (27%)
- Heat source too close to combustibles (14%)
- Unclassified mechanical failure or malfunction (12%)
Comparisons of different fuel or power options:
- Liquid-fueled central heating units have the highest risk of fires and civilian injuries
- Electric-powered central heating units have the highest risk of direct property damage
- Gas-fueled water heaters have a higher rate per person for direct property damage than electric-powered equipment
- Gas-fueled heating devices such as space heaters pose higher risks than electric equipment due to nonfire carbon monoxide poisoning.
In all cases, newer, updated HVAC systems that are more efficient and less likely to be overworked in extreme temperatures significantly help reduce the risk of fire. Additionally, a building with a recently overhauled system is at lower risk for freezing pipes during the winter—a claim that accounts for more than $5 billion in damages annually.
A. Rebuilding Sustainable Communities
On May 4, 2007, an EF5 tornado ripped through Greensburg, Kansas, destroying nearly 95% of the entire rural town. Rather than rebuilding the community the same way it was before, Greensburg leaders saw an opportunity to improve the quality, efficiency, and safety of local buildings. Today, Greensburg boasts the highest per capita ratio of Leadership in Energy and Environmental Design-certified buildings on the planet and is widely considered the model for sustainable building.
Greensburg benefitted from $80 million from the Federal Emergency Management Agency and $2.5 million from the National Renewable Energy Laboratory in order to rebuild homes that use 40% less energy than conventional houses, a new school that is 60% more efficient in its energy use; and a wind farm that generates enough energy to power the town and much more.
The 95-year-old courthouse in the middle of Greensburg was one of the only structures left standing after the tornado. Rather than replacing it, Greensburg leaders opted to renovate with updated, safer, and sustainable features—earning a LEED Gold certification.
Greensburg's local John Deere Dealership and Service Shop was rebuilt from scratch in a new metal structure spanning 27,000 square feet and is designed to achieve LEED Platinum standards. Green features include highly insulated wall and roof systems, modernized, highly energy-efficient HVAC, a network of skylights, mirrored reflectors and other natural light directors, wind turbines that provide 10% of the building's total electricity needs, and more.
Prairie Pointe Townhomes is an affordable housing complex that offers safer, higher-quality living conditions with modernized and efficient electrical, heating, and cooling, plumbing systems and more. It was the first structure to receive a residential LEED Platinum rating in Kansas.
Superstorm Sandy and Sustainable Incentives
On Oct. 29, 2012, Superstorm Sandy wreaked havoc in 24 states, including the entire Eastern Seaboard from Florida to Maine and even stretched across the Appalachians into Michigan and Wisconsin. Eqecat reports that total damages from Sandy have exceeded $50 billion—a figure only surpassed by Hurricane Katrina.
In the aftermath, some leaders in New York and New Jersey took steps to replicate Greensburg's strategy by offering green incentives for sustainable rebuilding. New York Governor Andrew Cuomo unveiled a plan for $1.7 billion in relief and rebuilding funds featuring strict requirements for green building and energy efficiency for homes and businesses in order to improve the safety and ability of communities to better withstand disasters.
B. Long-term Impacts on Industry Rates
More than 100,000 buildings have been registered by the U.S. Green Building Council, and the number continues to grow at a rapid pace. As sustainable building strategies increase in frequency, consider how the reductions of risk that come with efficient, modernized systems and appliances could also help reduce the frequency and severity of claims filed and what that could mean.
In 2011, insurers collected $62 billion in premiums from homeowners, and 92% of that amount was used to pay claims. In years to come, if the total cash amount insurers pay out for costly property damage and other claims drops, homeowners may see fewer rate hikes. In this way, the sustainable features of homes, businesses, and other structures that actually reduce the number of claims filed could certainly lead to more stable insurance rates for insurance policyholders across the board.