At first, the connection between the insurance industry and the promotion of green building may not be obvious. Given the rising incidence of hurricanes, floods, droughts and wild fires at least partly attributed to climate change, and given the fact that the insurance industry is committed to environmental protection, green building and sustainability begins to make sense. The insurance industry sees a connection between green and sustainable practices and reduced risk, and in the last few years has become an environmental champion. In the process, the industry has helped prove that not only is green building beneficial for the environment, but it’s good for the bottom line of business and colleges and universities.

Taking a leadership role in the move toward more energy and resource efficient construction, the industry has been taking proactive steps to make green building easier for institutions and individuals. Partly due to their efforts and the efforts of many others in the environmental movement, green building has taken off all over the country with over 100 U.S. cities passing green building ordinances requiring new buildings to meet environmental standards. Colleges and universities have become important advocates for action to mitigate the risks of climate change. The American College and University Presidents Climate Commitment has 675 signatories.

In addition, the recent stimulus package allocated $6.3 billion for energy efficiency and conservation grants, providing even greater incentive for organizations to build new green buildings and upgrade their current buildings to green standards. The rise of the green movement, combined with the formation of the United States Green Building Council’s Leadership in Energy & Environmental Design (LEED) green building standards, growing demand for green buildings and a significant improvement in the variety and quality of green building materials available, mean that going green today is more than an environmental decision—it’s an economic one as well.

Consider the following statistics:

• Green buildings increase a building’s value by an average of 7.5 percent and improve return on investment by 6.6 percent while decreasing operating costs by 8 to 9 percent, according to McGraw-Hill’s Smart Market Report.

• McGraw-Hill also found that green buildings generate higher revenue due to higher rents and occupancy rates.

• Green buildings generate lower operating costs by reducing waste output and energy consumption. According to the Environmental Protection Agency (EPA), green buildings with a focus on recycling can reduce waste output by 90 percent and use 30 percent less energy, equating to a five percent increase in net operating income.

• Universities with green campuses can better attract and retain quality students and faculty. A recent Princeton Review survey found that 66 percent of respondents, including both parents and students, said they would value having information about a college's commitment to the environment. Of that 66 percent, nearly one-quarter said such information would "very much" impact their or their child's decision to apply to or attend the school.

• Green buildings also provide better insurance risk. On average, green buildings suffer fewer losses and are safer to insure due to the extensive commissioning process required to become LEED certified.

This whitepaper is intended to provide an overview of green insurance in the college and university market, as well as a road map for how academic institutions can begin making their campuses healthier, more energy efficient and more sustainable.

The Greening of American Campuses

Colleges and universities have long been on the leading edge of reducing greenhouse gas emissions, energy costs and their overall impact on the environment. Along with environmentalists and activists, today’s universities are often on the front lines of climate research and the development of new energy alternatives. Their climate science programs are developing the next generation’s climate leaders who will lead the way in lessening our impact on the planet for generations to come. In addition, colleges and universities often model what is possible in terms of energy conservation, through comprehensive green campus initiatives.

Each college and university that makes a commitment to going green does so for its own unique reasons. Some want to reduce energy and operating costs. Others want to attract a student body and faculty that are committed to sustainability. Still, others have invested millions in cutting-edge climate science programs and having a green campus often becomes a logical extension of their academic programs. Regardless of how they get there, many find themselves facing new challenges when it comes to green building development, including finding the appropriate green insurance coverage.

How Green Insurance Policies Work

As the first property and casualty insurance company to offer green insurance to the U.S. commercial marketplace in 2006, Fireman’s Fund Insurance Company recognized that one of the primary contributors to global warming was the thousands of older buildings that were not energy efficient. In the fall of 2006, Fireman’s Fund created the first green commercial property insurance coverage. Today, a number of other insurance providers also offer similar coverage.

Here’s how it works: In the event of a loss, green upgrade insurance enables policyholders to replace traditional systems and materials (flooring, paint, carpeting, etc.) with green, environmentally friendly materials in accordance with the LEED standards. If the entire building is destroyed, green insurance often will pay for the replacement with a green certified building. Universities with green certified buildings often receive a percentage discount on insurance coverage.

Certified Green Building Coverage

For property that has already been green-certified, some insurance companies now offer reduced rates as well as providing coverage for vegetated roofs, alternative water systems, and green power generation equipment in the event of a loss. Coverage often includes the hiring of an accredited professional to help manage the repair process and coverage for loss of income until the green power generation equipment is replaced.

Green Risk Management Consulting

In addition to providing green insurance, many insurance companies also provide green risk management consulting to help organizations select the most prudent and proven options in a very crowded and competitive marketplace. With these programs, risk management and loss control experts help policyholders identify workable solutions to reduce energy costs, decrease carbon emissions, increase profitability, improve indoor air quality and reduce risk and losses.

Insurance companies have found that in addition to helping improve the bottom line and better attract and retain faculty and staff, going green can be a powerful risk reduction tool as well. According to Fireman’s Fund, the number one cause of loss in commercial buildings is electrical fires, followed by plumbing leaks and heating and air conditioning malfunctions resulting in a fire. The loss ratio for green buildings is significantly lower when compared to traditional buildings.