Insurance: The known unknowns

The growing prevalence of using modern methods of construction (MMC), such as timber frames - over more traditional techniques, such as with bricks or concrete blocks - to build properties quicker, cheaper and more efficiently has seen a substantial increase in the use of MMC in the past decade or so. These new technologies are used in the construction industry on all manner of buildings from small blocks of flats to education, health and leisure centres, all the way up to the latest major construction projects in London.

With the UK construction industry currently enjoying an upturn in fortunes following the lean years of the financial crisis, there is a growing interest by many within the industry to use these materials that allow for a quicker and sometimes cheaper build. There is also a decent amount of kudos to be gained from using eco-friendly materials in the construction of major projects.

However the increasing use of MMC in construction is causing uncertainty across the insurance industry as underwriters wrestle with the new
risks posed.

Top of the list of concerns among insurers is how underwriters can assess the risk for the new and innovative methods which are being adopted by MMC. In particular, the new materials being used in MMC make underwriters feel very uncomfortable. Worryingly for underwriters, there is evidence to show that some materials used in MMC pose greater fire risk than in traditional construction, and others are more susceptible to water damage. Underwriters work on the basis of trying to understand and forecast the likelihood of risk. So they need to know as much information as possible about the actual fire performance of materials, their vulnerability to arson, and the propensity for fire containment.

After a major fire at a site under construction in Basingstoke using timber-framed methods, the chief fire officer questioned the fire resistance in MMC buildings, saying: “When these buildings catch fire, the actual structure burns. It often leads to total collapse
and that puts the safety of our firefighters at risk.”

So the insurance industry is confronted with the uncertainty that a major disaster with severe loss of life may lead to draconian governmental measures. There is no doubt that MMC is causing insurers to consider the longstanding debate about life safety vs property protection, especially as regulations are currently more concerned with building performance. Against this backdrop some major insurers are now declining to quote for some buildings where MMC is used, worried by the increased prospect of a major project loss or loss of life.

Experienced and specialist brokers can help by asking the right questions when projects are being underwritten

To clarify, MMC is a generic term for both off-site manufacturing and new site-based building techniques, and takes in a range of building processes such as modular construction, panelised systems and tunnel form methods that allow the casting of walls using concrete in one operation. For instance, modular construction, where building sections are constructed as pods and then later stacked onto prepared foundations, is becoming increasingly popular.

Some MMCs introduce large quantities of combustible materials into their designs such as wood, polystyrene and recycled materials like tyres and pallets. Using these types of materials can alter both the probability of fire and the potential scale of loss should a fire occur. MMCs have also given construction companies the ability to build more affordable and sustainable homes with a lower carbon footprint. However their lightweight nature can make them vulnerable to potential water-related risks. What’s more, the ability of many MMC materials to withstand the effects of flooding is unknown in many cases. And on top of this, replacement components used by MMC are often expensive and may not be readily available, particularly if a manufacturer goes out of business. All this means MMC represents alien territory for insurers and that is why some insurers are staying well away from it.

Faster MMC methods present insurance companies with greater risk, which can impact on all aspects of the development and on overall cost. In the future, manufacturers will need to satisfy insurers about improved fire-risk performance and provide better information about materials used in MMC. By doing so, underwriters will be better placed to assess the risk and underwrite the project accordingly.

In the meantime, experienced and specialist brokers can help by asking the right questions when projects are being underwritten and making sure that everyone is comfortable with the use of MMC, including all relevant stakeholders, architects, financiers and even local fire authorities.

Peter Morse. Executive Director at specialist broker, Clear Insurance