Insuring a greener built environment – what will it take?

The build-up to COP30 in November will undoubtedly bring conversations on built environment emissions to the surface.  

Decarbonising building materials and practices are big talking points, often more so than the role of equitable insurance solutions in making low-carbon buildings a reality.  

Reflecting on this, BCIS executive director Richard Maclean discusses what is needed to create an insurable built environment.  

Insuring a greener built environment – what will it take?

Insurers’ ability to provide cover for sustainable buildings is no easy feat.

There’s naturally less claims data in this area for insurers to base premiums on because low-carbon building materials are still not widely adopted across the construction sector.

For this to change, both government action and greater collaboration between the insurance and construction sectors is needed.

Businesses, like people, are often creatures of habit and the construction sector is no different.

It continues to operate in a complex economic environment and while output and demand are reasonably steady, incentivising businesses to swap carbon-intensive products for cleaner substitutes is challenging.

This is mainly because sustainable materials can have higher upfront costs than traditional counterparts due to economies of scale.

The irony is that they can also reduce building life cycle costs and contribute to emissions reduction.

Commercially speaking, in the current economic climate, the low adoption of sustainable materials makes sense.

Why change what you build with when doing so could be more timely or expensive?

That’s not to say there’s a lack of commitment from the sector.

For instance, in the UK cement industry, emerging technologies such as plasma generators and microwave energy are being explored to electrify cement production. The use of alternative fuels (i.e. waste-derived energy sources) has also led to marked carbon savings⁽¹⁾.

Such innovation is promising and increasing opportunities for greener building materials and practices to be used.

Realistically though, mass adoption of low-carbon materials will only happen when mandated through regulation – likely in the form of a standard that requires whole life carbon emissions in new building work to be measured and reduced.

The publication of the Future Homes Standard (FHS), due in autumn 2025, is in some ways a practice run for this.

It will mandate high energy-efficiency and low-carbon heating in all new build homes, with renewable electricity generation, largely via solar panels, set to become a functional requirement under Building Regulations⁽²⁾.

It could help to drive more competitive pricing and greater product efficiency in the solar panel market, potentially increasing their inclusion in projects outside of residential work.

Mass adoption of technologies or materials is ultimately achieved when products turn into commodity items that are easier to integrate into projects.

Success with the FHS will hopefully be proof enough that a regulatory catalyst can increase the uptake of low-carbon materials and, as a result, provide insurers with a larger body of claims data to develop more tailored, affordable cover.

From an insurer’s perspective, providing cover for greener buildings comes down to data.

The larger the sample of claims data for real-world sustainable buildings available, the more accurate their premiums and the lower the risk of overinsurance or underinsurance.

If severe enough, overinsurance or underinsurance can lead to insurers cancelling policies, which could lose them customers.

Insurers are commercial businesses and as it stands, those that don’t specialise in sustainable property would be taking a big risk to insure an unfamiliar asset.

That said, insurers still have a part to play in decarbonisation ahead of regulatory change and the mass adoption of sustainable materials.

A prime example includes the Mass Timber Insurance Playbook (MTIP).

It provides a framework to facilitate collaboration between insurers, the construction industry and timber suppliers and can be used to address the risk challenges of insuring mass timber buildings (3).

Timber is considered a highly sustainable material but one that MTIP suggests can challenge the principles and methods of insurance loss estimation due to its multiple risk profiles, such as combustibility and water sensitivity.

The playbook is therefore a way for all parties to discuss the risk profiles of mass timber buildings and reach fair insurance solutions that still make mass timber buildings feasible.

As pointed out in an embodied carbon report from AECOM, MTIP has highlighted an opportunity for a broader insurance playbook to be created.

The report suggests this would help to address insurer concerns about new and innovative materials, therein supporting their wider adoption in construction.

A playbook would also enable construction businesses and stakeholders to better understand the risk profiles of materials used in projects and facilitate communication with insurers to make sustainable buildings readily insurable and not on one-off occasions.

MTIP was developed by insurance and building resilience specialists and could be used to lay the groundwork for a larger-scale playbook as carbon data for building materials and projects develops.

As it stands, the onus is currently on the government to respond to AECOM’s recommendations so it’s currently a waiting game for insurers.

However, it’s still in their interest to collaborate with the construction sector sooner rather than later.

In a world where contractors start dropping cement for mycelium, all eyes will turn to insurers to make a greener built environment viable.

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^{(1) NPJ Materials Sustainability – Towards a net zero built environment: decarbonisation of the UK cement industry – here}

^{(2) GOV.UK – Rooftop solar for new builds to save people money – here}

^{(3) The Mass Timber Insurance Playbook: A guide to insuring mass timber buildings – here}