Construction is like insurance. The basics don’t change much, but when there are new developments, they can alter the trajectory of the industry.
Building innovations — namely 3D construction, solar panels and cross-laminated timber — are changing builders risk insurance exposures, leaving a gap in knowledge for agents. As these construction techniques grow in consumer interest, it’s important for agents to know how course of construction policies will respond to their various risks, which includes reading the carrier’s coverage form to understand the scope of eligibility.
In 2018, the U.S. Army “printed” out of concrete a barracks hut suitable for housing in just 22 hours. That’s less than one day to build their structure!
The global 3D printing construction market reached $1.4 billion in 2021 and is estimated to reach $751 billion by 2031, according to Allied Market Research — a compound annual growth rate of 87%. Rather than pouring concrete into traditional molds, 3D concrete printing lays materials in layers through a computerized process. This process creates walls, floors, roofs and other components, and promises greater speed of completion and lower costs than typical construction methods.
From an insurance underwriting perspective, because 3D is new it lacks the government regulations and industry standards that apply to other construction methods. Likewise, 3D design and pro- duction skill levels and quality control are in development.
Fundamental to builders risk policies is coverage for the integrity of the structure under construction. Builders risk carriers typically include collapse as a covered peril. In the event of a collapse due to a 3D component, the carrier may cover the collapse, but likely will not cover the component that caused that collapse.
Builders risk coverage typically does not cover faulty craftsmanship (the defective design, manufacture and installation of faulty building materials), unless it results from a covered cause of loss, and the insurer may then pay only for the loss or damage caused. The same is true for EDCP components.
Agents also should be aware that a 3D process may present risk of damaging already-completed construction work at the same site.
One big positive advantage of 3D is time. It now could take only days for a contractor to frame a building using 3D-printed materials. With the builder then completing interior finish work, a project might be done in as little as three months or less — less than half the time to build a conventional home.
But even as 3D printing can reduce the time frame, the value of the project is still the same. So that element of the exposure hasn’t changed.
Solar power, while not new, brings promise of lower electricity bills, environmental benefits, higher home values and less maintenance. The use of solar panels in residential and commercial buildings is projected to proceed apace.
Residential solar power installations increased 34% from 2.9 gigawatts in 2020 to 3.9 gigawatts in 2021, as reported by Pew Research Center.
To put it in perspective, one gigawatt is enough energy to power about 750,000 homes. Influenced by the Inflation Reduction Act (IRA) of 2022, solar capacity will spike from 73 gigawatts in 2011 to 617 gigawatts in 2032, as forecasted by McKinsey.
Underwriting concerns include natural catastrophe damage to solar panels. Hurricane, tornado, flood, earthquake, hail, wildfire and heavy snow bring added exposure to accounts with solar panel construction.
“Micro-cracking,” a form of solar cell degradation due to expansion and contraction of silicon from thermal cycling, might be covered by some carriers, but others attach an endorsement to remove that coverage. Even carriers that insure for micro-cracking might limit coverage. Builders risk underwriters will want to know if solar storage batteries are part of a solar panel system, and they likely will prefer that a licensed electrician complete the installation of a battery energy storage system. Carriers also want to know the experience of the contractors installing these systems. They also will consider the installation location (roof or ground), whether they will be connected to the power grid, layout of the panels, costs and power output of the system.
As usual, agents need to read the policy conditions when quoting builders risk policies covering solar projects.
Mass Timber Construction
Mass timber construction is an umbrella term referring to several manufactured wood products, including:
- cross-laminated timber
- glue-laminated timber
- dowel-laminated timber
- nail-laminated timber
- structural composite lumber.
Mass timber is made from multiple solid wood panels nailed, doweled or glued together to provide a strong, stable low-carbon alternative to concrete and steel, according to ThinkWood.com.
One of the benefits (and underwriting considerations) of mass timber construction is that it might be more resistant to fire compared with conventional lumber. Like 3D, mass timber components might allow for faster construction timelines, as well as improved site safety and less construction debris. It’s like a built-in fire safety system. You won’t know the difference in quality until it matters.
Carriers will likely want to consider the experience of the building contractor with mass timber construction, and agents need to discern which building components are mass timber. Not all materials used in a building project are likely to be mass timber, so the risk profile of a project could be hybrid. With a hybrid of build- ing materials, insureds may get a break on rate compared with traditional frame lumber premium pricing. Even though mass timber components might be expensive, they don’t necessarily decrease the rating because the premiums are still based on the total completed project value.
Lastly, mass timber can be more sensitive to weather and moisture, potentially leading to warping; agents might see higher water deductibles being applied due to this increased exposure.
3D construction, solar panels and cross-laminated timber all seem to be here to stay. By familiarizing themselves with underwriting considerations for these construction types, agents can continue to play a key role in helping builders risk customers find a market and contribute to a smooth submission process.
WRITTEN BY Rachele Holden Holden is senior vice president, head of product underwriting for US Assure, where she is responsible for product development, loss analysis, and rating and guidelines. US Assure exclusively distributes, underwrites and services Zurich's builders risk insurance program across the U.S.