Smart building practice guidelines, loss control techniques emerge
After insurers started excluding mold across the board in their traditional property-casualty underwriting as well as professional liability coverages, a collective sigh of relief was heard across the industry. "Thank goodness we don't have to tangle with that lurking liability anymore," the thinking went.
Well, I've got news for you–things have changed. Mold is not only a manageable risk; mold coverage could now be a profit center.
A few years ago, you could argue that there were no risk analyses, risk management practices or risk modifiers in place to convince an underwriter that anybody was doing anything to prevent insurance losses on mold claims. However, that is not the case today.
The amount of data and research on what causes mold and how to prevent it has been piling up, thanks to a range of entrepreneurs looking at new solutions to an old problem. Insurers' mass exodus from mold coverage in many ways prompted these initiatives.
Now smart practices are surfacing for mortgage bankers along with builders, developers, contractors and architects who are all agents of the owner or borrower. If the borrower had an affordable mold insurance policy in hand, it would most assuredly ease the concerns of lenders that have been sweating bullets because they are exposed to 80 percent of mold risk.
So, what are these risk modifiers and smart practices?
As principal of Environmental Assurance Group, I have been researching this subject and interviewing stakeholders in real estate, finance and insurance for more than a year. Here are the top three:
o Prevention is the key, rather than "fixing the problem."
Once mold gets into a commercial or residential structure, it is difficult to eradicate.
o Follow a building/construction protocol to prevent moisture from entering a building.
Techniques include effective location of vapor barriers, installing a waterproof roofing system, putting in windows with low potential for condensation, and using newly developed mechanical ventilation systems.
o Use mold-resistant building materials, such as paperless wallboard, non-woven house wrap, non-paper-faced insulation, fiberglass-faced roofing panels, etc.
Some of these materials were developed or introduced after insurers' mass exodus from the marketplace. In fact, one of the reasons they exited the scene was because of the lack of data on the impact of building materials.
Consultants now are being engaged by lenders that are in the process of doing deals for multi-family, hotels or health care centers to develop smart-practices guidelines on mold risk mitigation. In addition to the mold-resistant building techniques and products mentioned above, consultants like EAG also encourage the use of new applications such as spray-on coatings that prevent mold as well as fire and other perils.
With all of the new science and information out there, creating a competitively priced mold insurance product should be doable. Eighty to 90 percent of the cases are controllable, especially in new construction, which gives you the added benefit of starting at ground zero.
If most building sciences people and engineers agree–and they do–that a set of smart building practices would stand a strong chance of preventing mold in most cases, then insurers who underwrite coverage for mold based on a mold/fungal endorsement to a property-casualty policy can create a handsome new income stream.
A mold/fungal endorsement would force loss control through the requirements of a protocol being developed. Loss control was not in the picture before.
In my mind, this endorsement would have a sublimit of coverage so the owner, as well as the lender, could rely on it. By the way, do not be surprised if real estate lenders begin to require this endorsement just as they do title insurance, fire insurance and other coverages.
Recent building engineering studies have shown that mold/moisture losses are generally no worse than, and most likely less than, fire losses. By following a smart practices protocol and required use of mold-resistant building products, these studies show that most losses would be limited primarily to accidents: a window left open on a rainy day, a washing machine hose breaking while the owner is away, etc. And accident frequency presents quantifiable, and therefore manageable, risk in the insurance world.
Charles Perry is founder and principal of West Hartford, Conn.-based Environmental Assurance Group, consulting the real estate lending industry on "Smart Practices" risk management property damage and liability management as it relates to mold as well as other environmental exposures.
Mr. Perry was a real estate lender for 20 years and the owner of an environmental insurance underwriting and brokerage firm for 12 years. For more information, contact perry-EAG@earthlink.net.
If most building sciences people and engineers agree–and they do–that…smart building practices would stand a strong chance of preventing mold in most cases, then insurers who underwrite coverage for mold…can create a handsome new income stream.
Caption for mold to dollars art: Is there gold in mold? Insurers who have been running away from mold cover should consider reversing those strategies now that guidelines for managing mold risk are emerging.
Caption for smart building art: Be smart about mold. Techniques like paying attention to locations of vapor barriers, and installing waterproof roofing systems and windows with low condensation potential are among the smart building practices that can make mold liability insurable.
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