Over the past decade, LEED certification has become an increasingly popular objective for builders and owners of commercial and residential properties. According to the USGBC, more than 36,000 commercial projects and 38,000 single-family homes have already participated in LEED since the rating system was first introduced in 2000. The volume of participating properties is enormous—about six billion square feet of projects are registered, and developers of another six billion square feet of projects are currently pursuing certification.
Although claims adjusters are generally familiar with the LEED concept, relatively few among them possess comprehensive knowledge of how LEED certification affects the recovery process following a disaster, such as a flood or fire. This knowledge gap creates risks for both the insured and the insurer, but adjusters can close that gap by more carefully assessing how restoration of an insured LEED-certified property differs from disaster recovery for real estate not certified by LEED.
Although most LEED rating systems do not require periodic recertification audits, there is an exception in the case of LEED for Existing Buildings (LEED EB): Operations and Maintenance (O&M). This certification, which encompasses maintenance programs, energy and water usage, waste management, and indoor environmental quality, is performance-based, and requires recertification every five years.
Another consideration is the increasing popularity of “green insurance,” which offers more generous policies to owners of eco-friendly commercial or residential buildings, compared to policies for commercial and residential buildings that have not received any kind of formal green recognition. A 2009 Wall Street Journal article explained this dichotomy, noting that green buildings are perceived as safer and less expensive to operate in the long run. Furthermore, some insurance companies are now offering homeowners the option, in the event of a loss, to have damaged areas restored with green materials for a small premium.
As LEED continues to gain traction within the real estate market, it is essential for claims adjusters to familiarize themselves with LEED rating systems. If they don’t understand the higher performance levels LEED buildings must meet to retain their certification, adjusters may end up approving restoration efforts that do not fulfill policy obligations of “like kind and quality.”
Fortunately, there are many ways to ensure that such replacement costs are not incurred. The first step is for claims adjusters to fully understand that LEED-rated buildings are holistic entities.
Alternatively, firms can consider working with consultants when training isn’t feasible, or when time is limited. Companies should also conduct due diligence when determining which contractors to hire in restoration efforts. Do these contractors have LEED accredited professionals on staff? Do they offer green services or products? As LEED building methods become more prevalent, these are important questions to ask before deciding on a contractor.
Some insurance firms are taking these preventative steps, but there is still a long way to go to reduce the knowledge gap that exists among claims adjusters regarding LEED issues. Meanwhile, LEED continues to gain popularity, and these numbers are sure to continue growing, especially now that new rating systems are being introduced at a rapid rate. LEED for Retail, for instance, was just launched in November.