As more eco-responsible buildings sprout up in the Middle East, we look at how the insurance sector can As more eco-responsible buildings sprout up in the Middle East, we look at how the insurance sector can benefit from embracing the green agenda.
The oil-rich Middle East region, with its vast energy supply, is an unlikely candidate for a green building boom. Yet the region, known for its super-tall skyscrapers and over-the-top architectural excesses, is seeing more widespread development of sustainable building environment in recent years.
Conventional high-rise buildings, especially commercial buildings, consume a significant amount of energy, contributing to over 30% of total global greenhouse gas (GHG) emissions. Because of the arid climate, buildings consume up to 70% of energy in parts of Gulf compared to those in other parts of world, mainly on account of extremely hot weather and the rampant use of glass exteriors.
Conventional construction work uses excessive amounts of energy, water and raw materials, and tends to generate large amounts of waste and potentially harmful atmospheric emissions. As a result, companies are facing demands to build environmentally friendly and eco-efficient buildings, while minimising their actual impact on the environment.
Greening trends
To mitigate GHG emissions from buildings, local governments and various stakeholders in the Middle East are increasingly embracing green developments.
With better awareness, a growing number of countries such as Qatar, Lebanon, Jordan and the UAE have developed their own green building rating system based on international building guidelines such as Leadership in Energy and Environmental Design (LEED) to incorporate socio-economic, environmental and cultural aspects in their modern architecture.
The push for sustainable development has seen the number of LEED-rated buildings increasing rapidly across the region. According to available data, there are more than 1,300 green buildings in the Middle East with LEED accreditation. Of these buildings, more than two thirds are in the UAE, followed by Qatar and Saudi Arabia. Some examples are Masdar City and Siemens headquarters in Abu Dhabi, Tornado Tower and Msheireb Downtown Doha in Qatar, and King Abdullah University for Science and Technology (KAUST) in Saudi Arabia.
Benefits of going green
As sustainability becomes a key factor while designing buildings, conventional architectural styles have been increasingly replaced by cutting-edge green building technologies in the construction of super tall structures. In line with this development, developers are promoting sustainable growth by incorporating top-of-the line energy-efficient technology, solar-powered systems, wind turbines and innovative structural techniques that allow natural ventilation.
Mrs Yolla El Khoury, Executive Group Vice President at ACE Holding, said that green building projects have increased in popularity due to their lower utility usage and ecological features. “Middle East governments and private sector stakeholders are embracing the challenge of green development to move forward to a more sustainable future. An increased emphasis on green buildings is coming not just from the region’s governments, but also from developers, who in turn are responding to rising sustainability benchmarks set by large corporations,” she said.
The UAE and the rest of the GCC region have embraced the idea of green building in line with global efforts to reduce greenhouse gas emissions, said Mr Khalid Rawashdeh, ADNIC’s Senior Manager – Engineering and Construction, Energy Construction & Professional Indemnity Underwriting. “The positive attitude towards HSE (health and safety environment) will help improve the quality of risk management from the insurer’s perspective, as many aspects related to safety and fire prevention would be managed more efficiently,” he pointed out.
He added: “Going green will positively impact lifestyle changes and reduce risk factors. The concept will also attract more investors to new technologies, resulting in enhanced product innovation within the insurance industry.”
In terms of the potential human health benefits, green buildings are an advantage to insurers, who have seen fewer claims related to harmful health conditions as a result of green materials used, including low volatile organic compound (VOC) emitting products such as paints and carpets, said Mrs El Khoury. “It has also been learnt from various other studies that general liability and environmental policies on green buildings have suffered considerably fewer losses.”
Opportunities for insurers
As the industry grows, it is estimated in 2015 that 40%-48% of new non-residential construction worldwide will be green, bringing about a US$120-145 billion opportunity for the insurance market.
Globally, the insurance industry has been quick to capitalise on the growing interest of green buildings. The first commercial green policy was offered by Fireman’s Fund Insurance Company in the US in 2006. Now, several large insurance companies including FM Global, Travelers, Zurich, Chubb, Liberty Mutual and Lexington/ AIG offer some form of insurance coverage for green buildings.
Mrs El Khoury said the green insurance market is developing and become competitive, with the green construction industry driving this growth. “This growth is creating opportunities for insurers in the market that can respond to this new need and provide adequate solutions such as green building specific products.” She noted that in this part of the world, property policies are not yet catered to cover green buildings, but some big names are already working on it.
She also pointed out that with various countries encouraging LEED, “the insurance industry should capitalise on this new demand. Insurance companies have started to introduce commercial products that promise to rebuild damaged property to certain green standards. It would be highly recommended that insurance companies introduce an industry benchmark green upgrade coverage for commercial property.
“This will allow for additional funds to repair or replace damaged property using green alternatives, paid additional debris removal expenses associated with green expenses such as recycling and reclamation, and also recognise the potential for an increased period of restoration for time element losses when green building was utilised.”
She added that “this is a trend that promises to provide potential growth for property insurance, and the regional companies are slowly rising up to this challenge as this would mean a growth in premiums as well”.
Construction issues
Given that the notion of green building design and construction is relatively new, it is important to identify the risks and challenges associated with green buildings.
According to Zurich, green construction presents a number of issues for the insurance industry. For instance, the use of different construction materials mean fires would behave in different ways, which needed to be factored into the underwriting. Similarly, many green buildings utilise architectural elements such as rooftop gardens, which bring with them the potential to retain large quantities of water, risking structural damage and water penetration. This means larger exposures for property and liability. Also, the added complexity of these buildings create additional professional indemnity exposures for designers and builders.
Mrs El Khoury said some of the challenges insurers face when organisations go green is the scarcity of resources in the Middle East specialising in green construction, such as expert engineers to understand the risk and the entailed technology.
Mr Rawashdeh added that insurers’ underwriting abilities would be challenged in tailoring new products which will cover seamless insurance coverage for green building technology and design. “The insurance industry has always been enterprising in its support for innovation, looking for example at the carbon credit insurance and solar panel performance guarantee.”
While insurance professionals are supporting industry technocrats to develop innovative construction technologies, materials, and concepts for green buildings, he said “risk engineers and loss adjusters are further required to be fully skilled in handling risks associated with these buildings, through training and professional development”.
The insurance industry will rise to the challenge of going green by drawing upon its experience, Mr Rawashdeh said. “The industry is developing a niche product for such risks and we will be able to continue its development as we gain more experience,” he noted.
Positive outlook
As the green building industry continues to develop in the region, with various stakeholders including local governments, corporations and communities committing their resources to greening new and existing buildings, the risks associated with these projects will continue to evolve. This provides ample opportunities for insurers who are expected to play an important role in helping to mitigate the risks.