Offsite construction is often touted as the building method of the future - but there is evidence that insurers are struggling to assess the new risks it may pose.
When it comes to buildings, it often seems there’s nothing new under the sun.
Take for example the trend for prefabrication, and then think of the 670,000 prefab houses we put up after the Second World War - constructed in more or less the same way.
Prefab caused something of a stir back then, as is the increasing use of modern construction methods, or offsite techniques, in prefabricating houses, flats, student accommodation, hotels and commercial buildings.
In particular, concerns over insurance are apparent as underwriters evaluate the new risks.
Reactive insurance industry
There is always a trade-off involved when cheaper construction techniques that sometimes offer a quicker return on finance take over from more traditional, tried and tested methods.
At this stage it is too early to say what that trade-off will be.
But the insurance industry, usually more reactive than proactive, already seems to be running scared of a major disaster with severe loss of life which may lead to draconian governmental measures.
Offsite construction is effectively causing insurers to reconsider the long-standing debate about life safety versus property protection, especially as regulation is currently more concerned with building performance.
From an insurance perspective the introduction of new materials and innovative construction techniques is creating uncertainty about the risk posed and the performance of these buildings in the longer term.
These new, innovative building products and methods of construction involve two broad phases: extensive factory production of sub-assembly sections and components, followed by accelerated on-site assembly methods.
The production methods include:
- Volumetric or modular construction – three-dimensional steel, concrete or timber units which create foundations to form the structure. Kitchen and bathroom pods are another example.
- Panelised units - open, closed, concrete, composite and structural insulated units designed to fit within an existing structure.
- Hybrid or semi-volumetric units
Onsite methods such as tunnel-form allow contractors to pour concrete in-situ to simultaneously mould the external wall, floor slab and party wall elements.
In other buildings, insulating formwork creates highly airtight and thermally efficient external walls, while thin joint masonry welds blocks with specially developed quick-drying mortar.
All these new methods are having an effect on the way insurance underwriters assess risk.
There is already some evidence that a number of materials used in offsite construction could pose greater fire risk while others are more susceptible to water damage.
This uncertainty surrounding the risk makes underwriters uncomfortable.
They want to know the precise fire performance of materials, their vulnerability to arson, and the propensity for fire containment.
“There is already some evidence that a number of materials used in offsite construction could pose greater fire risk while others are more susceptible to water damage”
In some prior total losses fire was deemed to have spread partly through oxygen locked into the lightweight modular ‘building block’ materials.
Other risks emerging from modular construction include hidden gaps that can lead to even a small incident causing a disproportionately high loss and increased claims costs.
Susceptibility to water damage and flood or storm loss has been a problem with some new materials and construction methods.
And there are also concerns over project delays caused for instance by pods needing to be removed.
Offsite systems, like any innovation, are also prone to a series of hitches and teething troubles caused by the steep learning curve for contractors in using new materials and assembly techniques.
On top of that, replacement components are expensive and may not be readily available, particularly if a manufacturer goes out of business.
All in all, offsite construction represents untrodden ground for insurers and the response of their underwriters reflects this.
“Offsite construction represents untrodden ground for insurers and the response of their underwriters reflects this”
For the construction industry, this type of property can present a series of headaches.
Contractors’ insurance, including liability insurance premiums, for sites using offsite techniques, will be more expensive with higher excesses and more exclusion clauses.
Funders may also be put off if the construction method makes the property less likely to be sold or let.
And we are also seeing insurers charging higher premiums on completed modular buildings and demanding more onerous surveys and higher levels of risk management.
So the trade-off for cheaper, faster offsite construction methods lies in greater risk, which can impact on all aspects of the development and on overall cost.
In the future, if fire risk and other issues are tackled by manufacturers, then insurers are likely to take a more relaxed view.
But a major loss with severe fatalities could equally result in a redrawing of government building regulations and dire consequences for offsite construction.
What will be the final verdict? That’s beyond the scope of my crystal ball.
Peter Morse is executive director at Clear Insurance