HSB expands its environment-friendly coverage features
By Susan R. A. Honeyman
Differentiation can be a hefty business challenge in a commodity world. Whether your product is tangible, like a stainless steel kitchen sink, or intangible, like a promise in an insurance contract, there are only limited numbers of variables to exhaust before your marketplace offerings blend with those of your competitors.
Over the years, adherence to green practices has become one point of difference, and Hartford Steam Boiler Inspection and Insurance Company (HSB) began to capitalize on that trend more than a decade ago by providing commercial clients with coverage designed for their aspirations to go green. Now, it has expanded that coverage to fill additional insurance needs for green organizations.
The term "green" refers, of course, not to the color but to any of the various ways of using individual and general resources efficiently so as to conserve the earth's natural resources and limit harmful effects on the environment. This includes reducing energy usage; moving to renewable energy sources like solar, wind or water; recycling or reusing your spent materials; or purchasing recycled materials of others. Though they may ultimately save money and other resources, green buildings, green materials and green manufacturing methods often initially cost more. Property insurance coverage needs to reflect these additional costs if it is to be truly responsive to clients' needs.
In the late 1990s, HSB recognized that many insureds who suffered losses were not interested in replacing their old equipment with similar equipment. Great strides were being made to create safer, cleaner and more efficient machinery, and these clients saw no reason to continue to use outdated, inefficient equipment when better equipment was available.
Nor did HSB. "We saw a trend growing and a real need," says Timothy Bebout, HSB vice president. "We wanted people to improve their risks and they also wanted to do it," so in 1998, HSB began offering Environmental Safety and Efficiency Improvement coverage. That earlier coverage allows an extra 25% of an HSB-covered loss payment to pay for upgrading to more efficient and environmentally friendly equipment.
HSB didn't stop there, but continued to monitor developments in the green trend through a dedicated team. "Listening to agents and brokers and working with insureds, we realized a lot of people had already made that transition and that they needed to make repairs to their green equipment," he says. HSB also noted that as demand for efficient equipment grew, so did lead time to repair or replace it, so they realized that the policy needed to address additional costs for business interruption and extra expense. Also they noticed that some customers had obtained LEED or other certification and wanted to protect certification in the event of loss. More needs can translate to more opportunity, so the insurer decided to upgrade its insurance offering.
"Many companies talk about green, but HSB's core principle is to back products with service and technical expertise. We felt we were ready to introduce this new green endorsement because we knew enough about the technology and industry to deliver on our promise," says Bebout.
HSB Green Equipment Breakdown Coverage, which enhances the Environment Safety and Efficiency Coverage with new and enhanced protection, became available in most jurisdictions on July 1. It is included within HSB's Freestyle policies at no extra cost and Bebout said he is unaware of another insurer offering the coverage in this manner.
Beyond the 25% limit increase to upgrade to green equipment after a covered loss, the new policy also offers an additional $25,000 limit for other loss-related green expenses like business income and extra expense.
For companies with certification from LEED (Leadership in Energy and Environmental Design—see box at right), the U.S. Environmental Protection Agency's (EPA) Energy Star program or similar recognized organizations, this additional coverage would pay recertification fees and costs like flushing out air space to meet program requirements. "The endorsement doesn't take someone not LEED-certified and bring them up to that certification," he explains.
One example of a typical customer loss where the new protections would be useful, Bebout suggests, would be the failure of a large air-conditioning unit, which releases refrigerant that seeps onto some nearby carpeting and destroys it. A traditional policy would pay the cost to replace the old carpeting with carpeting of similar materials and quality, but the decision to upgrade to an environmentally friendly carpet would incur additional costs for the insured. Green Equipment Breakdown, however, will pay for replacement carpeting consistent with green practices—perhaps made of 100% recycled materials and with less-volatile chemicals than traditional carpeting. It would also pay for increased costs to dispose of the old carpeting in an environmentally friendly manner.
The greatest market for Green Equipment Breakdown Coverage, he says, involves heating, ventilation and air-conditioning (HVAC) systems, since an estimated 50% of all building energy is consumed by HVAC operations. Boilers are especially problematic because of their age.
"Many [boilers] we inspect have been in service from the 1940s and all run perfectly fine, but they are very thirsty and are not very efficient," he explains. When those objects fail, most owners don't want merely to be made whole with a repaired or refurbished version of their old unit, but to replace it with an upgraded newer, more efficient unit. Perhaps a highly sophisticated, variable-speed unit that runs only as needed. The additional coverage can make doing the right thing more affordable.
HSB insures 4 million locations and conducts a million inspections a year, so "we see a lot" and are a good resource for clients, says Bebout. Beyond its extensive technical database, HSB's access to loss prevention and green solutions was furthered when Munich Re acquired HSB in 2009, as HSB can exchange ideas on emerging trends with engineers in Germany.
HSB partners with a large number of other insurers in its areas of expertise, and as it does so, it encourages its engineers to speak to them about green exposures.
Bebout stresses that Green Equipment Breakdown is a product close to the heart of this 145-year-old Hartford, Connecticut-based insurer, with its origins in engineering and boiler inspection. Munich Re shares that interest and is refitting the Munich Re America's Princeton, New Jersey, headquarters with a solar power system that the EPA expects will reduce annual electricity costs by $500,000 and Munich's carbon footprint by the equivalent of removing more than 400 cars from the road.
"The success of our core business is inextricably linked to environmental protection, so a sustainable approach is an indispensable component of our business strategy," says Tony Kuczinski, president and CEO of Munich Reinsurance America.
And from HSB's perspective, green will continue to grow as an important part of its customers' business, as well.
When a business or organization wants to capitalize on its green building, it usually seeks third-party certification from the LEED (Leadership in Energy and Environmental Design) Program, developed in March 2000 by the nonprofit U.S. Green Building Council (USGBC).
Not only does adherence to the LEED strictures provide cache to the new or renovated building and its owner, but it has become a formal or informal requirement for some federal and state contracts, emphasizing five areas: sustainable site development, water savings, energy efficiency, materials and resources selection and indoor environmental quality. Standards are specific and far-reaching, ranging from air quality to heat loss to acoustic design.
The USGBC currently certifies more than 22,500 buildings—almost 10,000 commercial and 12,600 residential. On the commercial side, an additional 31,660 buildings have been registered with the organization and are in various stages of building or renovation on their way to become certified. Helping this along are some 162,000 designers, contractors and consultants who have completed the organization's training programs and earned one of three LEED professional accreditations.
Meeting LEED certification standards will undoubtedly increase costs, though the amount can vary dramatically. The bulk of costs involve construction and/or equipment, but there is an initial project registration fee of $450 for members of the USGBC and a certification fee that averages $2,000. The project must be recertified every five years or whenever there is a major alteration of the building, whether a planned upgrade or a significant repair.
Susan R.A. Honeyman is vice president of Word Hive Communications in New Haven, Connecticut.
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