Green Buildings & the Implications on Your Hotel Insurance

By Richard Dahm Senior Risk Consultant, National Hospitality Division, Wells Fargo Insurance Services | October 28, 2008

As oil penetrates the $130-a-barrel mark and natural gas prices increase to rates four times what they were since the late 1990s, the use of green building (or building green) has taken seed to a new beginning to reform the cost of energy across all sections of industry. Green building is no longer just another popular cause or fad; it is here to stay as a vital and profitable part of the commercial real estate and construction industries. Anyone in the building trades or anyone involved with real estate investing or leasing needs to understand fully -- green building trends, opportunities, and consequences that can affect all areas including building codes, insurance rates, employee health, customer satisfaction, and more. This article will set out to serve as a survey of the important fundamentals and forecasts of what has happened and what will happen going forward in the efforts to build a green environment. In order to understand the green building movement, one must define what green means, its roots in government, its regulatory offspring, the LEED certification system, its growth forecast, profitability, banking, and insurance industry efforts, and its affect on states such as Florida and all those that are adversely effected. While southern states may have a stronger need for going green, all states and industries can benefit from the reduction of energy costs.

Green Building Benefits

The benefits are persuasive: energy savings, waste reduction, reduction in water use, enhanced indoor air quality, and inexpensive operating and maintenance costs. Not to mention, creating a better public image and increasing worker productivity, employee morale, retention, and overall better health.

Designed for cost effectiveness, green buildings reduce energy costs through the integration of site orientation, on-site renewable energy producing technologies (such as solar power and hydrogen fuel cells), natural daylight, and ventilation technologies, downsized HVAC, and many other energy-saving technologies. One can realize significant savings during the life of a green building with low-maintenance materials, smart building controls, salvaged construction debris, water-saving equipment, and natural landscaping.

In addition, employee productivity improves when increased daylight, fresh air, and access to pleasant views are incorporated into the workplace. It also improves employee health and well-being by improving air quality, reducing emissions, and providing natural light.

National estimates put the savings resulting from green building in the billions of dollars. These are healthy buildings and as such reduce exposure to legal claims and liabilities to the owner. On the other hand, sick buildings have seen rate hikes and mold exclusion clauses by the insurance companies soaring. As green buildings become more common, insurance companies are recognizing the benefits and are linking lower premiums to higher environmental performance.

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Eco-Friendly Practices: Corporate Social Responsibility

The hotel industry has undertaken a long-term effort to build more responsible and socially conscious businesses. What began with small efforts to reduce waste - such as paperless checkouts and refillable soap dispensers - has evolved into an international movement toward implementing sustainable development practices. In addition to establishing themselves as good corporate citizens, adopting eco-friendly practices is sound business for hotels. According to a recent report from Deloitte, 95% of business travelers believe the hotel industry should be undertaking “green” initiatives, and Millennials are twice as likely to support brands with strong management of environmental and social issues. Given these conclusions, hotels are continuing to innovate in the areas of environmental sustainability. For example, one leading hotel chain has designed special elevators that collect kinetic energy from the moving lift and in the process, they have reduced their energy consumption by 50%  over conventional elevators. Also, they installed an advanced air conditioning system which employs a magnetic mechanical system that makes them more energy efficient. Other hotels are installing Intelligent Building Systems which monitor and control temperatures in rooms, common areas and swimming pools, as well as ventilation and cold water systems. Some hotels are installing Electric Vehicle charging stations, planting rooftop gardens, implementing stringent recycling programs, and insisting on the use of biodegradable materials. Another trend is the creation of Green Teams within a hotel's operation that are tasked to implement earth-friendly practices and manage budgets for green projects. Some hotels have even gone so far as to curtail or eliminate room service, believing that keeping the kitchen open 24/7 isn't terribly sustainable. The May issue of the Hotel Business Review will document what some hotels are doing to integrate sustainable practices into their operations and how they are benefiting from them.