Insuring mass timber involves detailed underwriting, buyer preparation
Advisen
Insuring mass timber involves detailed underwriting, buyer preparation
Alex Zank, Advisen
The few insurers with mass timber programs ask for intricate details about the project, so buyers should be prepared with information regarding project team experience, materials suppliers, and plans to store and secure the materials, say experts.
“[Insurers] want to understand more about the specific risks in order to evaluate what that means, because there’s a lack of data on what actually happens,” said Lisa Podesto, mass timber and innovation specialist with Lendlease, a global property developer, builder, and owner.
Mass timber, or structural pieces made of layers of wood pressed together, is not noncombustible like concrete. But testing has shown it’s much more fire resistant than light-wood frame construction. It’s in a middle area “that insurers are still trying to understand what it means for risk,” Podesto said.
Most insurers put mass timber in the same risk category as light-wood frame construction, meaning rates are 10-20 times higher than for concrete and steel, and there’s much less capacity in the market, said Jake Concannon, vice president of Gallagher’s construction practice. “Instead of one or two insurance companies, you’ve got four, five, six, or even more insurance companies you have to put together in a joint venture in order to insure a building.”
“Several large underwriters have started to establish very strong sustainability goals, both in terms of how their company performs and the projects they cover,” Ricky McLain, senior technical director and growth and innovation program manager for WoodWorks, a group that promotes the use of wood in construction, said. “Many people tout mass timber is a very sustainable method of construction, so they see the benefit there in … covering a more sustainable way of building.”
A few, including AXA XL and Zurich North America, have programs tailored to mass timber.
Zurich’s mass timber underwriting process is more detailed compared to noncombustible projects because of the lack of historic data, Patrick McBride, Zurich’s head of construction property, told Advisen
Insurers want to know the project team’s experience with mass timber, said experts. This includes the owner, general contractor, subcontractors, and the manufacturer supplying the materials. In some cases, they want to know whether the project team has contingent manufacturers in mind.
“There are no wrong answers, but it gives us insight to the thought process of an owner and GC, but also potential areas to highlight or areas to lowlight for selection of one manufacturer over another,” McBride said.
Underwriters also dig deep into the construction process and handling of the mass timber material. This includes transporting the pieces from factory to building site and properly securing and storing them on site. They consider how temperature, sunlight, weather, and water could impact the material. “The protection of the materials is huge,” said Gallagher’s Concannon.
Property underwriters want similar information for a finished mass timber structure, especially around protections against fire and water damage, said Carolyn Farino, head of insurance in the Americas for Lendlease. For instance, they want to know that hundreds of gallons of water coming from a sprinkler system will not further damage the building following a fire. The mix of a property portfolio between mass timber and noncombustible buildings also affects underwriters’ view of the risk. If the portfolio balance tilts to majority mass timber, “it does change the overall risk profile of the account,” said Farino.
Unique construction methods can create additional challenges. Concannon said he visited a mass timber building where, for aesthetic reasons, all HVAC and electrical systems were located below the floor. Leaving the mass timber exposed, as opposed to sheathing it with noncombustible material such as gypsum board, gives property owners and their insurance partners another risk to consider.
Lendlease is already speaking with carriers about property insurance on buildings that won’t be finished for another two or three years. Farino said her company needs that much time to bring the insurers on board.
The experts who spoke to Advisen agreed that interest in mass timber is growing. An updated International Building Code allows for taller mass timber buildings. Corporate giants like Google, Microsoft, and Walmart are using mass timber for their latest office projects. It will take continued educational efforts and growth in mass timber projects for more insurers to take a harder look at the building method, said McLain.
“The more projects that are completed and performing well provides more confidence to insurers to see this is becoming more of a tried-and-true method of construction,” he said.
