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Commercial Lines Rating Series: Part 4 – Green Construction Upgrades

March 18, 2013

Green ConstructionGreen Construction Upgrades

Coverage option for property owners interested in rebuilding damaged property with green alternatives.

 

There are 3 major components:

 

Green Upgrade Coverage (Maximum Amount)

Increases existing Replacement Cost Coverage to provide an additional limit of insurance to address loss settlement of damaged property using more energy efficient, environmentally preferred materials.

  • Applies to selected buildings and/or business personal property as scheduled in the endorsement
  • Does not apply to personal effects, property of others, leased property, or stock

 

Related Expenses

Additional limit of insurance applied to the following expenses related to green upgrades.

  • Waste reduction and recycling costs
  • Professional fees for design and engineering of green upgrades
  • Certification and testing fees
  • Expense related to maintaining green building performance
  • Building air-out and air testing expenses

 

Business Interruption

Option that extends the period of restoration on existing business income coverage or policy.

  • Extends the period of restoration to reflect that using green upgrades for deconstruction (including the salvage of as many materials as possible) and reconstruction may take longer than is usual for ordinary construction methods
  • Does not increase business income limit of insurance

 

Rating example:

(Excerpt from Form CP 04 02 and BP 14 75)

Green Upgrades

 (Maximum Amount)

Number of Days For Extended Period Of Restoration

Premises Number

Building Number

Building

Your Business Personal Property

Increased Cost of Loss (%)

Related Expenses

1

1

$400,000

50%

$10,000

60

 

Underlying building limit of insurance = $1,000,000    Rate for illustration purposes = .065

 

Maximum amount  

1)      $400,000 ÷ $1,000,000 = .40

2)      .40 ÷.50 = .80 Ratio

3)      .80 ratio = .60 Modification Factor (from table in state rules of the Commercial Lines Manual (CLM))

4)      .065 X .60 = .039 Green Upgrades Rate

5)      .039 X ($400,000 ÷ 100) = $156 Green Upgrades Premium

 

Repeat for each cause of loss as respects Division Five – Fire and Allied Lines.

 

Related Expenses

1)      .065 X .10 factor (found in the state rules of the CLM) = .0065

2)      .0065 X ($10,000 ÷ 100) = $1 Related Expenses Premium

Repeat for each cause of loss as respects Division Five – Fire and Allied Lines.

 

Business Interruption

Multiply the Business Income Rate for each cause of loss times the factor from the table shown in the state rules of the CLM – Division Five.

Or

Multiply the building and/or personal property premium by the factor from the table shown in the state rules of the CLM – Division Ten to develop the additional premium.

 

   (Excerpt from CLM Division Five)                                           (Excerpt from CLM Division Ten)

Number of Days’ Extension

Factor

Number of Days’ Extension

Factor

  60

1.02

  60

0.002

  90

1.03

  90

0.004

120

1.04

120

0.005

180

1.05

180

0.007

 

 

 

 

 

 

 

For more information about rating Green Upgrades, refer to Commercial Lines Manual.

  • Division Five – Fire and Allied Lines
  • Division Ten – Businessowners

 

Article by: Terry Krueger, Subscriber Administrator

Read more articles from our Commercial Lines Rating Series.

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