Not only is the construction industry striving to respond to the need to reduce costs and increase the speed of construction, but the industry must also address serious environmental concerns – particularly around carbon footprints – by seeking to utilise traditional materials, such as timber. This so-called ‘eco construction’ presents contractors with a range of different risks to consider.
Under the catch-all heading of Modern Methods of Construction (MMC), one such example is a growing trend for new, timber-framed structures.
The usage of timber has been rising in the construction market as the renewable and sustainable qualities are becoming valued alongside the practical benefits delivered. As such, this brings interesting opportunities for the construction industry and insurance providers will now need to adapt to meet the growing requirement. From an insurer’s perspective, often there is concern that these new construction methods can pose an increased risk, both in the construction process and for the completed structure.
Using large quantities of combustible materials increases the risk of a fire occurring, and the severity of a fire, should one take hold. In addition, dependent on the type of timber employed, the resilience of a timber framed building to withstand the effects of a major flood (or indeed a deluge of water used to extinguish a fire) may be less than for comparable steel or concrete framed buildings.
As such from an insurance perspective timber framed buildings are regarded as ‘non-standard construction’ and can attract increased premium rates. One could argue this is not without reason; timber-framed construction has had a chequered past, including a selection of high-profile fires during construction in the early 2000s that have made their way into the news headlines.
In reality, however, from April 2009 to March 2012, there were 134,000 fires across all forms of construction. 2,485 of these were timber related, however the method of reporting these as ‘timber’ does not differentiate between a genuine timber-framed construction project and other ‘timber’ structures for example, a garden shed.
In reality, then, it is believed that only 198 of these were actually ‘timber frame’ as we know it, and there were no fatalities. As a result, in the past, the insurance market has understandably been more conservative when considering timber frame risks as opposed to standard methods of construction. However, perceptions amongst insurers are slowly changing.
The Construction Industry’s Response
The construction industry has learnt from its mistakes, following costly insurance claims that have demonstrated a need for change. The industry is moving forward with fire safety strategy and Site Safe Documents aimed at reducing fires in the construction process.
Leading the way in this regard, The Structural Timber Association (STA) has introduced a number of safety initiatives to help the industry address the risk of fire and to improve awareness on how to minimise the risks. This includes the 16 Steps to Fire Safety, which is now being seen as the benchmark for fire safety on a construction site, and is being employed across a growing number of non-timber sites alongside being a mandated requirement for all STA members’ sites.
The insurance markets recognise that offsite methods of construction are part of the future for the construction industry in the UK. Crucially, it is the role of the insurance broker, to differentiate our clients’ risks and to secure the most appropriate cover and terms. For more complex risks, such as timber frame, there is real advantage to be gained by those brokers that spend the time with both the industry and insurers, helping them understand their clients’ risk profile and the reality of timber frame risks.
It is our role to help insurers understand what our client is doing differently to help mitigate the risks in order to secure terms, and actively preventing the market from simply discounting timber frame risks immediately because they are categorised as ‘non-standard.’
For construction projects this is achieved by gathering detailed and quality information for any given construction project, including material types and construction methods, to negotiate the best possible terms with insurers.
An Owner Controlled Insurance Project (OCIP) is one way to ensure that our Construction specialists drill down to the detail, encouraging differentiation in an insurer’s response between a ‘cautious’ one and a well-informed, appropriately underwritten one. This can be a better option than a Contractor Controlled Insurance Programme (CCIP) where costs may be passed on - without the same level of control as an OCIP.
The value of the project, materials used, construction methods, number of storeys, evidence of sufficient cavity barriers and separations from other structures as well as site security details to minimise opportunities for arson attacks are just a selection of the additional factors involved in an insurer’s decision-making process.
Our Construction team can also achieve better terms by ‘spreading’ the risk using a panel of insurers, securing broad form policy coverage and pre-agreed risk management requirements such as compliance with UKTFA guidelines, the Joint Code of Practice (JCOP) Fire Code and the 16 Steps to Fire Safety.
By involving insurers at the planning stage using a risk managed approach, better results may be achieved. Finally, Gallagher’s UK Construction team continue to be an actively engaged member of the Structural Timber Association, sitting on the Commercial Committee of the STA, and constantly working with members to improve perceptions and dialogue between the two industries.
Modern timber frame is already a proven offsite solution, used in the market for 40 years, and readily accepted by warranty, insurers, mortgage providers, with an established heritage and track record - with one out of four homes and soon to be one out of three homes - built using its many advantages.
To underline the significance of building in timber we can see tangible examples of the progress being made with Local Authorities, social housing providers and house builders embracing these ‘new’ build methods. Some are taking this a step further, with the London Borough of Hackney implementing ‘a timber first’ policy for new housing developments. There is also the case that the top three leading house builders have reported that they are using structural timber frame for up to 30% of their projects.
Whilst much has been written about the impact construction has on the environment, what has not been highlighted is the positive impact that a building can have on occupants. However, the health and wellbeing of occupants is becoming an increasingly important factor when it comes to building design and specification - with the World Green Building Council’s global campaign, ‘Better Places for People’ further heightening awareness.
Meanwhile, the UK Timber Frame Association (UKTFA) continues to demonstrate that timber frame remains the most sustainable form of construction in the UK, and also works alongside HSE, BRE (Building Research Establishment) and Zero Carbon Hub to promote and reinforce the reputation of structural timber construction methods and to promote safe practice in all aspects of the construction process.
Changing design methods and the development of ‘safer’ materials will continue as the construction industry seeks to balance the need for sustainable construction, with a requirement for materials to be sufficiently robust to withstand fire and flood risks. It is certainly not an easy tightrope to tread, particularly when the industry is also required to keep a weathered eye on construction costs and project timelines.
Changing Insurer Perspective
Historically insurers were indeed cautious about writing timber frame construction risks and completed structures on account of losses, or on account of a lack of suitable reinsurance coverage backing their position. Some were unwilling to provide any cover, whilst those that did insure a risk demanded high deductibles and onerous terms and conditions added to the policy wording.
This had resulted in an over-reliance on costly difference in conditions/limits to manage claims during construction and a risk of reduced latent defects cover once the project was completed. Often then once a project becomes ‘operational’ post completion, the loaded premium for timber frames is also seen in the property insurance cover and wording conditions.
The good news is that the perception of insurers is beginning to change for timber frame projects as the work of the STA and UKTFA filters down through the industry and leads to real, tangible change. This was exemplified at an Insurer Awareness Morning hosted by Gallagher, in conjunction with the STA, in June 2017. 36 insurers and risk engineers representing almost every single major construction insurer in the UK attended, and listened to some of the market leaders in timber frame discuss the latest developments in the industry.
The subsequent feedback from insurers was overwhelmingly positive. Almost 60% of insurer respondents to our follow up survey confirmed that the session had positively changed their perception of the timber frame industry, with not a single one responding negatively.
Our Construction division arranges insurance for UK and international contractors and designs bespoke owner-controlled programmes across a wide spectrum of projects. Our clients range from contractors and engineers, to sponsors, financiers and government local authorities. With our help, project stakeholders can identify, mitigate and transfer risk more strategically.
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