With modular construction increasingly becoming more common in the UK construction sector, Vista Insurance Brokers discuss the implications of modular building insurance, and what developers can do to ensure that they are adequately covered.
The UK’s regional housing crisis and continuing demand to provide new housing show with no sign of diminishing. More housing is required to ease the burden on the housing market and achieve the Government’s proposed targets. The obvious solution is to build cost-effective new homes, rather than alternative housing arrangements or conversions. Adding, the demand in rental sectors such as student accommodation, build to rent and retirement living is also seeing an increase in building activity for developments with purpose-built solutions. Modern Methods of Construction (MMC) and modular construction are Being used across the industry as effective and quicker ways of building to meet ongoing demand, with predominant use in the production of high-rise apartment blocks.
Although modular and other forms of MMCs for residential and commercial properties is nothing new, having been part of the industry in various forms for many decades, they do present some important insurance considerations for those who ensure their construction.
Insuring ‘ Product ‘ – Warranties and Allowances
As technology, and the building methods that follow, improve then naturally so should the quality in design and manufacture of modular units. This leads to a primary focus on inspecting off-site construction and reducing the amount of time spent on-site, which has been known to delay completion of a large-scale project and to use the time and resources of multiple contractors.
In the insurance sector, the finished off-site units are now viewed as ‘ products ‘ on their own, from a design, construction and installation perspective. That is why it is increasingly important to have the correct insurance guarantees and contractual obligations. Current insurance guarantees would provide protection for up to 12 years from the date of practical completion, notwithstanding the usual contractual requirements. In the residential market, these guarantees are, in particular, a requirement of the funders, especially if the properties are sold / financed. However, the same benefits may also apply to commercial units.
Does the use of modular construction mean higher claims?
As a ‘ product, ‘ there is greater clarity of control and therefore better control of delivery, which, in turn, may reduce the number of claims made during construction. However, due to the type of construction, these claims are likely to be greater than in traditional construction, as the entire unit may need to be replaced in case of a problem.
Other insurance and risk considerations to be considered which may lead to increased claims costs include:
● Buildings using MMCs will often only be designed to comply with local Buildings Regulations, which typically cover only life safety issues, not fire resistance. The use of lightweight and combustible materials also means that there will be less resistance to fire spread.
● Timber-framed buildings are of concern to insurance companies and will require fire suppression measures.
● External cladding panels with foam fillings have excellent insulation properties but are highly flammable.
● Fire/smoke and water can get into the voids between modular units leading to much larger claims than would otherwise be the case.
● Connection of services to pod units may be made by non-specialist tradesmen which can lead to problems over time.
● Accessibility for repairs and maintenance can be difficult, and repairs are even less simple if the entire pod needs to be removed, particularly if it is located at the bottom of a high-rise building.
● The fire break integrity of the building is easily compromised by drilling into panels to install new services.
● Many MMCs are new and innovative, their resistance to damage and performance over time is unknown.
● There may be problems in obtaining replacement parts in future, particularly if the manufacturer has gone out of business.
Insuring the modular developer
The advantage for developers lies in the fact that modular companies have improved access to supply and stock capacity than those with specific on-site construction. Modular companies can plan to build more efficiently without relying on multiple parties or contractors. Further benefits include faster construction times, fewer people on site and less waste. Quality control is improved as work is carried out in a controlled environment and less prone to human error and services (plumbing & electrical) can be pre-installed in such a way that only external supply connexions are required once in situ. Modular constructions are also highly energy efficient.
Modular buildings can be cheaper to insure as the industry is still in the early stages of the insurance market. In the future, this could lead to less complicated placement, which could also result in lower premiums, although there is little evidence for this in the current market.
Modular construction – what are the pitfalls?
Although there are many benefits to MMCs, the risk of the completed modules themselves being damaged or destroyed in transit is possible, resulting in longer delays to the program. These may not be covered by the Delay in Start-up (DSU) section of the Developers Project Insurance Program, especially if the responsibility for storage or delivery has not been clearly defined.
Also, if the contractor or supplier becomes insolvent under a traditional construction contract, the developer may obtain alternatives. If the modular producer goes insolvent or the units are damaged beyond repair prior to reaching the site, it would prove more difficult to obtain replacements within the appropriate timeframe.
The insurance broker and BOPAS
Working with your insurance broker and MMC insurers may address the issue of using modular construction during the design phase. It is also worth considering the Build offsite Property Assurance Scheme (BOPAS) scheme, which provides assurance on the integrity of off-site construction systems delivered in a consistent and competent manner in accordance with the contract specifications.
The BOPAS assessment covers all aspects of the business operation, including systems, processes and procedures, together with the transfer of interfaces from design through off-site manufacturing and construction / assembly to the handover of the client. These are all being tested against the quality assurance arrangements, the management of environmental and project changes and the control measures applied to mitigate delivery risks.
The importance of disclosure
The use of MMCs is an important feature that should be disclosed to insurers who may require additional precautions. If you purchase a property, the use of MMCs may not be immediately apparent.
The Insurance Act of 2015 introduced a duty of fair presentation, which means that the insured must make the insurer aware of all the risks of insuring the building or the home. Therefore, if you have any doubts as to the construction of a property, it is important that you investigate and determine whether this is the case. If the MMC has not been disclosed to the insurer, they have the right to impose a rated settlement in the event of a claim or, worse still, to avoid a policy that could potentially leave many £ 1,000 out of pocket to Property Owners or Developers.
For more information contact Ross Hayden on Mobile: 07498 037 991
Direct: 0161 804 1134 Email: ross@VistaInsurance.co.uk