Canadian insurers are increasingly favoring purpose-built green buildings over retrofitted ones, particularly in risk evaluation and pricing. Mark Whiteley, VP of commercial insurance at Billyard Insurance Group, highlights the significance of this distinction for underwriters in assessing risk. Insurers tend to view new green builds more favorably as they feature fully integrated systems designed to work harmoniously from the outset, unlike retrofits that may struggle with system compatibility issues.
The main concern insurers have with retrofitted properties is the risk of system misalignment, where modern technologies layered onto aging infrastructure can lead to unpredictable outcomes. Hybrid systems in retrofits can increase both the frequency and severity of claims, especially in commercial buildings, amplifying business interruption losses and liability exposures. Claims adjusters may face challenges in determining fault or sourcing replacement components when newer technologies interact poorly with older ones.
Insurers are cautious about green retrofits due to concerns about the reliability of newer technologies, particularly those offered by lesser-known companies without a proven track record. The lack of long-term performance data for these products can raise uncertainty regarding durability, serviceability, and claims predictability. Installation standards may vary if the technology is not widely adopted or is linked to a company with limited market experience, creating exposure to system failure and downstream impacts like fire risk or mechanical breakdown.
Brokers advising clients on sustainable upgrades must navigate between insurer caution and client enthusiasm, ensuring that environmentally conscious improvements do not inadvertently increase risk profiles or coverage gaps. Scrutinizing warranties attached to new green technologies can help brokers mitigate potential issues by confirming if comprehensive warranties cover downstream effects of product malfunctions. By understanding the boundaries between product warranty coverage and insurance policy coverage, brokers can help clients navigate claims processes more effectively and potentially prevent claims by utilizing warranty protections first.
Key Takeaways:
1. Insurers prefer purpose-built green buildings over retrofits due to concerns about system compatibility and reliability of newer technologies.
2. Retrofitting older properties with green technologies can increase the frequency and severity of claims, leading to business interruption losses and liability exposures.
3. Brokers can play a crucial role in helping clients understand warranty coverage for green technologies to mitigate risks and ensure effective claims management.
4. Scrutinizing warranties early in the process can help avoid confusion during claims and potentially prevent insurance claims by leveraging warranty protections.
Tags: hybrid systems, regulatory, downstream
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