Q&A: Consultant Stephen Bushnell Digs into Green Insurance Products

After learning about green buildings, after examining their structural characteristics that may not be covered by traditional insurance policies, and after studying green rating guides and the commissioning process, Stephen Bushnell came to a notable conclusion.

“It seems that green buildings would be better risks for us to write than a traditional building,” he thought.

Bushnell researched green buildings and helped develop early green insurance and risk management products in the early 2000s with Fireman’s Fund Insurance Co. He worked in insurance for 40 years before starting his current career as a consultant. He now works at Bushnell Mueller.

His green building hypothesis proved true. Fireman’s Fund tracked its loss experience, and year-after-year, the numbers showed green buildings were “significantly more profitable than traditional buildings that made up the rest of our book of business,” Bushnell recalled.

Below, Insurance Journal’s interview with Bushnell about the green insurance space has been edited for clarity and conciseness. Summations appear in italics.

Q: Tell us about your work.

Bushnell: One of the things that I’ve done as a consultant is work with insurance companies to help them develop green products, green risk management programs, improve their ESG and sustainability programs, take a look at climate change and climate risk and determine what the best response is.

Part of that is that we periodically survey the market, and we look at what insurance companies are doing for green products. And we have not seen much evolution beyond some people copying what Fireman’s Fund had done in 2013-14. That’s on the commercial side. That’s on the homeowner side.

The latest look at the market I did was about a year ago, and I did not see anything that was broader than what Fireman’s Fund had in 2014. And most of the coverages were narrower.

Q: What do you want people to leave this story knowing or understanding?

Bushnell: Green buildings present less risk to insurers. They present a more viable economic value proposition to owners and managers, and contractors and architects. And they’re more friendly to the environment because they reduce greenhouse gas emissions.

So, the overall value proposition of green buildings to the public, the building owners, to insurance companies, is strong. From the insurance company standpoint, recognizing that, building your expertise, and then doing the promotion and the risk management advice to your customers is the step that hasn’t been taken yet.

And if we’re concerned about all of the good value that green buildings have, doing that should be easy to do. It shouldn’t be something that gives you concern. To promote green buildings is not taking a position that might be objectionable to any of your stakeholders in your insurance environment. It’s something that only has positive features going for it.

The other thing is that green and resilience intersect somewhat, but resilience is a whole different animal. And I think insurance companies are very worried about resilience these days when you look at what’s happening in California with State Farm and Allstate pulling out of the market because they cannot get the right price because the wildfire exposure is just too great, and the property is not resilient to wildfires.

Doing something for resilient construction and resilient communities in California is going to be important. Really, California or anywhere where you have a catastrophe exposure. Important for an insurance company or the insurance industry to have a long-term, profitable relationship with that area.

Q: What constitutes a “green building?”

Bushnell: One of the first parts of a definition of what a green home is — or a green building — is that it’s certified and it meets the standards of some third-party green building rating authority. Otherwise, you don’t know what you have. You have greenwashing, you have people who come close but they’re not quite there, and then you have outright charlatans who are just trying to promote a product they don’t put together.

[Bushnell explained that in a broad sense, green buildings are energy efficient, water efficient and eliminate volatile organic compounds that hinder indoor air quality. He said green buildings should also not be built in a flood plain and have some measures of resilience against natural disasters.]

From what I’ve seen in my work, most of the national companies have some kind of green form. The European companies pretty much all do — the Allianzes, the Swiss Res and the Munich Res. The regional companies are kind of iffy, and the smaller companies don’t often have a green form or a green emphasis.

Q: Has insurance kept up with innovation in the green buildings space?

Bushnell: The LEED (Leadership in Energy and Environmental Design) system has evolved, green building has evolved, but the same basic characteristics that an insurance underwriter and insurance company should be worried about — they’re the same. They haven’t changed that much.

So, even though there’s been an evolution, there’s new materials that are being introduced, there’s new construction techniques that are being introduced, the basics — the core fundamentals of what a green building is — from a risk standpoint, from something an insurance company is going to be concerned about, are essentially the same that they were back in 2002 or 2003, when LEED began to get some traction.

So, the point then is, how have insurance companies adapted their own products?

And I think what most of them have done is something that’s just good enough and something that will keep them from losing market share. Something that will give them something to talk about in their annual sustainability and ESG reports. But nobody has pushed the envelope very far.

Q: Can you think of any notable failures or successes within the green insurance products space?

Bushnell: I’m not aware of a whole lot of failures. I think there’s a success in that as the insurance industry recognizes that there’s value in green buildings, it’s helped the green building market. It’s helped people who are maybe on the fence about, ‘Do I build a green building,’ when there’s a rate discount for homes and commercial buildings that are green.

It makes the economic value proposition a little bit stronger. It lends some credibility to the whole green building movement that insurance companies are saying, ‘Yes, this is valuable. This is something that’s important.’

Q: What else can insurers do to motivate green building and green energy use?

Bushnell: I think there’s two big ones. Two huge ones.

I mentioned that I’ve been doing research as to what insurance companies offer, what green products, and it’s not very easy to find that kind of information. Insurance companies are not actively promoting their green building coverages or the environmental or economic benefits of green. I would believe that if insurance companies would promote green buildings, the economic value, the risk reduction factors and the environmental value — it would have a bigger impact on the market. But they’re not. And there’s probably a lot of reasons for that.

These days, insurance companies are keeping a low profile for their ESG work. They want to put that information out for people who care about it: rating agencies, regulators. …

The second way, and I think this is an important factor in insurance, insurance is more than risk transfer. An insurance company that offers strong loss control and risk control advice is going to be helping their customers improve. And I mentioned that Fireman’s Fund had a green risk management program. Not many companies do.

And I think they’re missing the boat on that, through the risk management side, where they go out and talk to their larger customers, especially, to be able to emphasize what the value is of green buildings. And how to green your building now, even if you don’t go all the way to being certified.

Q: Claims have always been a concern in this sector. What have been some of those concerns, and which of them have translated to real-life claims?

Bushnell: There are a lot of concerns. Some of them valid, some of them aren’t so valid.

Initially, one of the big concerns was something called LEEDigation. And that is lawsuits if a building is intended to be green but doesn’t have the energy efficiency that was asked for or expected. Are there going to be lawsuits that are going to challenge the builder and the architect?

And there haven’t been. That kind of never panned out. And what happened was that when there was a building that wasn’t meeting the initial goals, that the contractor, the architect, the building owner, the people operating it would get together and make fixes.

But there have been some things that are of concern with green buildings or energy efficiency or alternative energy. And I think you can look at solar panels as one.

Solar panels can be damaged by hail, and they can be ripped off buildings with high winds. And there’s always been concern — and I think it’s justifiable — that the standards that they’re made to stand up to hail just aren’t strong enough. Especially with the frequency and severity of thunderstorms and hailstorms becoming worse and worse as we go along.

So, there’s concern that solar panels will be damaged by hail, and they have been damaged by hail. There’s a concern that heavy wind can rip them off roofs and the mounting brackets aren’t adequate, or they aren’t installed properly, and that has happened. So, that was an initial concern, and it’s still ongoing.

[Bushnell also shared that about a decade ago, large warehouses with solar panels installed from eave to eave caused several large losses because firefighters weren’t sure how to access the roof to vent the buildings. That has since been mitigated, Bushnell said, by stronger solar panel installation guidance and pre-planning between building owners and fire departments. He also pointed to a developing risk: mass timber frame high-rise buildings.]

It’s a concern. How is that protected? And is that going to be a problem where you have a fire and it’s spreading rapidly through the building, and people on the upper floors are going to be trapped there.

So, I think that’s a concern that the industry has.

Architects really like this. People who are concerned with the carbon footprint of building materials really like this because wood has a lower carbon footprint. But is it safe?

[Bushnell also touched on straw bale homes. Insurance companies have stayed away from them, he said, because straw is flammable, can spontaneously combust when wet and house rodents and insects. His research, though, has found that straw bales are rated two- to three- times more fire resistant than wood frame and drywall walls.]

When we first introduced the green products with Fireman’s Fund, we were worried: Are there enough contractors who understand what a green building is to be able to do repairs on these things? And are green materials readily available should there be a loss? And what happens in a hurricane or a huge fire, because there’s a demand surge on all kinds of materials?

Will green products even be worse? We say we’re going to upgrade with green products. Are we going to be able to find enough green products, or are we going to have that building sitting there, waiting for the contractor. Waiting for the products. With the business income and the rental loss claim increasing and increasing every day while we’re waiting.

That was a concern, and that did not happen. Experience showed us that, no, there were enough contractors, and there were enough green building materials. That wasn’t a problem. But some companies still worry about that.

Q: Let’s talk about resiliency and green buildings.

Bushnell: A green building and a resilient building are two different animals. When you think about resilience, you think about what does resilience mean? What does it entail? And it’s not just the building being able to stand up to the catastrophic event — which is certainly important.

But what about the neighborhood? What about the community? Can that be resilient as well? Have the community and property owner engaged in any kind of pre-planning of how they’re going to respond to a disaster. FEMA is requiring that communities have disaster plans now, but they’re not often well-known by the community.

Another thing is: What about the utility grid? Can the utility grid support resilience? And I think a good example about a building that is green but is not resilient because of the area would be Hurricane Sandy in New York several years ago.

There were many buildings that had no damage at all, but they couldn’t operate because the neighborhood was destroyed. So that building might have been resilient, but the entire picture was not resilient because of the neighborhood. So, I think that’s an important consideration to put forth.

LEED is looking at resilience as well. About two or three years ago, they started working on a new part of LEED called the RELi rating system that starts adding resilience to the green building mix. And it’s probably got a long way before it’s mature, but the U.S. Green Building Council is considering, ‘What can we do to make a green building more resilient?’

But there’s a whole lot more than just the building, as I said.

Q: Are there any inherent qualities of green buildings that make them resilient?

Bushnell: A good green building that meets some of the green building rating codes is not built in a flood plain. So, right there, you have something. So many buildings in the U.S. are built in flood plains, and so many people rebuild right in that same flood plain after they’ve had a total loss.

The RELi system adds some things about hardening the building for a loss. But it really doesn’t address — and it wasn’t intended to address — being a hard building in the event of a windstorm or an earthquake or a tornado or a hailstorm.

If you want to look at what a definition of a resilient building is, you look at something that the IBHS (Institute for Building and Home Safety) has done. And they have a program called Fortified. And they have wildfire safe houses, and they have hurricane safe houses. They have a whole lot of standards now … to make your property more resilient and safer.

Now, when the RELi standard was being built, there were people from IBHSA on the committee … so they were able to interject a lot of their ideas into it. But not all of them.

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