01 July 2022
A Future Built of Wood?
The increased use of timber is often-mentioned in discussions around the construction industry building more sustainably. Having been used in other parts of the world, including Europe and North America for the past few decades, engineered or mass timber products such as cross laminated timber (CLT) and Glulam, are proposed as more environmentally-friendly replacements for concrete and steel. But in the current conservative insurance market, finding insurance for mass timber construction projects may be a challenge.
Becoming Net-Zero
In March 2021 the House of Commons Environmental Audit Committee (EAC) launched a new inquiry into the sustainability of the built environment – and specifically how the construction industry can become net-zero. Given the ambitious commitments to reach net-zero by 2050 and, more recently, to reduce carbon emissions by 78% by 2035 compared to 1990 levels, both of which are enshrined in UK law, the question is a pressing one. It’s made more so by an expected growth in new construction in coming years. Government targets require the building of 300,000 new homes every year. There are also calls (noted by the EAC) to take into account embodied carbon – that is, the carbon produced by the manufacture of the materials used in construction – in assessments of construction sustainability. However, one area that can help reduce carbon emissions is refurbishing and re-purposing existing buildings. Unfortunately the refurbishment sub-sector of the construction insurance market has been at the leading edge of a hardening market, which has changed significantly over the last 24 months with several large losses; Glasgow School of Arts, Mandarin Oriental and Primark Belfast to name but a few.
The insurance dilemma
Including Existing Structures alongside the Construction All Risks insurance brings advantages but is very difficult currently. There is almost no appetite where works exceed 50% of the Existing Structure’s value. Some insurers have withdrawn entirely, declining to cover even works in isolation – this is especially true for listed structures due to issues around retrofitting modern services on old infrastructure. Within this context, the use of more-sustainable Modern Methods of Construction (MMC), including mass timber construction, modular construction and hybrid schemes (e.g. cross-laminated timber (CLT) slabs with a traditional frame) are often discussed. The use of timber-based structural products, such as CLT, is often raised as a key tool to lower the carbon intensity of construction. Indeed, according to one industry body, “the promotion of structural timber in construction is vital in the UK’s target of achieving net zero by 2050 […] we will not achieve it without [it]”
Cross Laminated Timber (CLT)
Yet the use of modern timber products in the UK construction market has progressed only in fits and starts. In Scotland and Wales, timber is the prevalent material in home construction with over 80% of new homes in Scotland being built using timber frames, thanks to supporting governmental policies. There have been some headline-grabbing projects in England too – think the Office Group’s Black & White Building in Shoreditch, Central London’s tallest mass timber office building. The UK generally however is struggling to accelerate uptake compared to the rest of the world while the use of timber in residential buildings over 18m was effectively halted by a ban in combustible materials in the external wall introduced after the Grenfell Fire; new proposals may see that ban extended to buildings over 11m. Engineered timber products do have some real advantages, however. Consider CLT: a prefabricated wood-based panel, it is made by bonding lengths of timber, called lamellas, in perpendicular layers, resulting in a material with structural strength across two dimensions, and improved structural integrity and dimensional stability. These panels can reach up to 22m in length and 3.5m in width – indeed, size is more often restricted by limitations of transportation and site conditions. In addition to environmental benefits, CLT can provide speedier project delivery as panels are manufactured offsite and delivered ready for construction, often as large structural elements. Panels can be manufactured to very tight tolerances with pre-drilled holes for easy fit-out. Site storage of building materials is also reduced by just-in-time delivery practices (a benefit for de-risking sites when it comes to finding insurance cover). CLT panels are also much lighter than traditional alternatives, such as concrete and steel. This means foundations (and therefore the use of concrete) can be reduced, while construction in difficult ground conditions is easier and less costly. The lighter weight of CLT can also help minimise health and safety issues – another critical risk factor for construction sites. Other benefits include a robust finish that is conducive to secondary fixings (no predrilling is required as is the case with concrete – again, speeding up construction times); it delivers good airtightness and soundproofing; and the need for accurate upfront design may also improve overall design and efficiency. Challenges do remain, however; and principally around fire. Whilst mass timber fundamentally does burn, the way in which engineered timber products burn is different to that of a “traditional” wooden post or beam. Again, taking CLT as the example, when the outer layer burns, it chars, and at a predictable rate. This charred layer along with the layer of glue slows or even largely prevents the heat from penetrating through to the inner layers, which therefore maintain their structural integrity. Much testing has been undertaken already to model this, but more evidence is needed, and whilst limited real life examples exist, many remain sceptical of how the testing results will translate into the real world.
"In Scotland timber is the prevalent material in home construction with over 80% of new homes being built using timber frames"
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Challenges do remain, however; and principally around fire
Insurance considerations
In the UK there is understandably an even more intense microscope on the introduction of an inherently combustible structural building product following the Grenfell tragedy, with the UK Government now seemingly more hesitant than those in other territories to advocate its usage. Recent fire losses in the UK real estate sector, although with no links to mass timber, have made underwriters wary, and likely to adopt a risk-averse approach when it comes to assessing alternative products such as CLT. Indeed, insurers are currently taking a conservative approach to any risk that sits outside of their core appetite, including mass timber, and seeking to limit their exposure. Hybrid construction, where generally CLT is used in combination with traditional materials, may therefore find it easier to obtain coverage. There are also risks related to supply chains. While mass timber is not new to the UK, it is still not widely used and there are no domestic manufacturers. Contractors should carry out the necessary due diligence on suppliers to ensure production processes meet project specifications and confirm the manufacturers QA/QC standards and procedures. Alternative plans may need to be put in place in the event of delay or if there are any issues with the mass timber elements. Contractors should also ensure the parties they are engaging with are familiar with the process, and suitably trained and prepared for working with a potentially unfamiliar product. Consideration should be given to engaging an expert consultant for complex projects. As there is little experience of the long-term performance of buildings constructed from mass timber, product warranties should be reviewed to ensure risks are properly allocated and that it extends to the end-user in the event of a defect. All that aside, the use of mass timber in construction appears destined to grow as sustainability pressures increase. As it does, so will the insurance industry’s understanding of risk factors and experience of claims performance. At the moment, however, engagement with brokers and insurers from as early as 18 months or more before works begin will be vital for projects wanting to use mass timber, since a big part of the solution is to leverage wider relationships, for instance via property insurers, and unfortunately we don’t anticipate improvement in the market in the short to medium term. Gallagher’s specialist construction and real estate teams are currently working on multiple large hybrid schemes for blue chip organisations, and are well-versed at navigating this complex construction insurance market, helping our clients at all points of the construction lifecycle.
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