The market for multi-story wood structures is expanding, spurred partly by rising demand for affordable housing and perceptions of potential cost savings. Tall wood structures differ in many other respects from mid-rise residential buildings. Different technologies are involved in the engineered wood products used. How these buildings are assembled also differs from conventional wood frame construction.
What has not changed are the risk exposure concerns of insurance underwriters. The same risk factors driving the significant differentials in insurance pricing for wood versus non-wood structures in the mid-rise residential market remain. The increased height of tall wood structures only heightens these concerns.
Insurance pricing for mass timber structures is much the same as for wood frame construction. The insurance industry is not prepared to accept mass timber as a separate building product from wood frame construction. Fire or water damage risks remain the key determining factors when pricing insurance coverage for mass timber and wood frame construction.
The net result is that insurance coverage for tall wood structures will continue to be higher than what would be the case for comparable buildings constructed with masonry, concrete, or other ‘non-combustible materials. Design features to limit fire or water damage or ensure safe egress during calamity may bear somewhat on coverage pricing for individual projects. However, the scale of the pricing differential will remain high, ranging from five to seven times the comparable pricing for non-wood alternatives.
Many other factors will influence insurance coverage pricing for tall wood projects. These include location relative to flood plains, resistance to extreme weather events, the ability to withstand earthquakes, access to first responder services, and density close to other wood buildings. What it all boils down to is the matter of risk exposure for any underwriter. Here are some of the considerations insurance companies take into account when pricing coverage for mass timber structures.
The fundamental basis of insurance underwriting is assessing and reducing degrees of risk exposure. While this sounds simple, there are many dimensions to the risk assessment process.
These include distinguishing between risks, perils, and hazards, identifying classes of threats, differentiating between pure and speculative risks, differentiating between fundamental and particular risks, describing risks, and identifying available methods of handling risks. Risk and uncertainty are two terms often used interchangeably. However, uncertainty refers to a state of mind characterized by doubt based on a lack of knowledge. This point is particularly relevant for assessing the risks associated with using mass timber in tall structures, a relatively new area of insurance risk assessment.
Also, the insurance industry is currently in a period of economic uncertainty, and many of the world’s leading insurers are holding firms to manage their risk exposures better. This uncertainty is not unusual, as the industry generally is highly cyclical, alternating between periods of profitability, which could translate into the loosening of underwriting standards, and periods of losses, where insurers increase the process and tighten their underwriting standards.
During construction, insurance coverage pertains to risks such as fire, building envelope breaches (usually from water), quality of materials, skill levels of contractors or sub-contractors, and security practices. Insurance coverage over the building’s operational life can involve many of the same perils – e.g., fire, water damage, damage from extreme weather events or calamities, and risks associated with the operation and maintenance of the structure.
Certain risk factors weigh more heavily when underwriting mass timber projects. Most are similar to other types of construction risk, while others stem from the newness of mass timber as a building material. Factors for underwriters to consider often include:
Of these factors, the most critical ones that bear the most on insurance pricing are the supply source, moisture protection, fire resistance, climate-related performance, and replacement costs.
Europe, Canada, and the United States have the most advanced mass-timber manufacturing capabilities. Underwriters routinely scrutinize the track records of product suppliers and their ability to meet performance standards for building products provided. Interruptions in supply can prove costly, and inappropriate building materials can be devastating.
The 2020 edition of the North American Mass Timber State of the Industry Report provides a comprehensive overview of the emerging market in Canada and the United States. It predicts the mass timber industry will demand 3.25 billion board feet of lumber by 2030, which will be met by average forest growth. This assertion is questionable on many fronts. Forests in Canada and the United States are under severe stress from disease, wildfires, and the environmental impacts of forest management practices.
The report acknowledges growing evidence that the material cost for a mass timber building may be higher than concrete or steel mass timber construction. Still, it suggests shorter construction times will help reduce labour costs, which will offset higher prices for materials.
Some developers believe shorter construction timeframes would offset the higher costs of project insurance or the higher per-unit cost of wood building products than non-wood alternatives. While some academic studies have suggested this is a theoretical possibility, only some real-world cases have been factually reported.
More to the point, the mass timber industry is still in its infancy, and the capacity to manufacture and assemble the more sophisticated engineered wood products required for multi-story structures is limited. Construction standards and building best practices are still evolving, and uncertainties prevail in the product supply chain, which the report attributes to “a combination of factors stemming from limited experience all along the supply chain.”
The supposed economies of buildings with mass timber depend on just-in-time delivery of panels designed for specific sequencing of placement, precise logistics planning, a skilled and experienced workforce, and proper materials storage to prevent moisture intrusion.
Fire is a crucial consideration for underwriters when pricing all Courses of Construction insurance. Therefore, measures to prevent or confine a fire are carefully assessed by underwriters. A two-hour fire rating of structural materials, floors, and exterior walls is a code requirement for tall buildings up to 11 stories in the IBC model code analogous to ISO-6 construction.
Proponents of mass timber argue that thick wood beams used for structural beams are hard to ignite. They char instead of burn, and the char layer acts as an insulator, allowing the wood underneath to maintain its load-bearing capacity.
This same charring characteristic prevails for mass timber products such as Cross Laminated Timber (CLT), it is claimed, and that is why most mass timber products are designed to retain their structural integrity at a two-hour fire-resistance rating.
Seldom mentioned is that charring wood adds fuel to the fire and increases the heat and smoke output relative to non-combustible materials. Charring also exposes the chemicals and glues that bond laminated lumber pieces, releasing toxic fumes and poisonous gases. Encapsulating exposed wood with fire-resistive materials is another approach in many tall wood buildings.
Most reinsurance companies are hesitant to draw pricing distinctions between mass timber and conventional wood building products, primarily due to the vulnerability of wood to damage from fire and water. Many believe more research is needed.
Moisture content is another major cause of concern to underwriters. Moisture can cause wood to shrink or expand as much as 2.5%, significantly affecting taller buildings. Therefore, mass timber products should be allowed to reach their equilibrium moisture content (EMC), which means they will not expand or shrink before installation.
A recent U.S. study states there currently are no standards regulating water management for mass timber elements during construction; little knowledge of impacts of moisture exposure (wetting and drying performance, dimensional stability, checking); and few precedents serving as guidelines for monitoring moisture response of mass timber.
Underwriters must also assess whether a mass-timber building’s design and construction address climate-related issues such as location relative to flood plains, resistance to extreme weather events, such as windstorms and forest fires, or the ability to withstand earthquakes. Insurance rates tend to be higher in areas where earthquake risks are significant.
Insured damage for severe weather events across North America has risen sharply in the last few tears. Most notable extreme weather events include flooding following prolonged rainfall and wildfires in areas where extreme heat has made forests tinder dry and vulnerable to combustion.
Globally, the number of multi-billion-dollar climate-related incidents has increased significantly over the past three years, impacting profits for the world’s major insurance companies.
Reconstruction-related costs and reusing buildings after a loss are vital concerns when underwriting mass timber buildings. Damage from a fire could affect structural mass timber members partially charred, raising several questions for the insurance company involved.
Will the building be suitable for re-occupancy, similar to a non-combustible structure? Will it take longer to repair buildings due to damage to mass timber structural members, or will they be demolished?
Because of differences between mass timber buildings and other more traditional types of construction, salvage operations should be reviewed as they pertain to mass timber construction to evaluate any additional measures or differences to procedures that should be considered for protecting exposed wood elements. This also includes the fire service’s education on salvage concerns specific to mass timber.
The report touches on many insurance-related issues regarding fire risks, water damage, personal safety, and the charring of mass timber beams. It cites case studies and experiments to demonstrate how mass timber structures comply with fire and building code standards.
The key message emerging from this is that insurance premiums are based primarily on perceived risks. For example, how likely will a customer or group of customers in a given area make claims, and what will it cost to rehabilitate or repair any damages arising from such claims?
Some underwriters will consider a wood building as a total loss at 50-60% damage levels, resulting in a decision to demolish the structure and rebuild. This could cause additional problems if the appropriate bylaws for destroying the undamaged portion of the building are not followed. Concrete buildings are less likely to be demolished and rebuilt at the same level of partial damage.
What the preceding analysis has demonstrated is that pricing for insurance coverage of mid-rise or tall mass timber structures is still governed by pragmatic assessment practices by underwriters that, in large part, are designed to limit the degree of risk exposure that could lead to expensive liabilities for repair, rehabilitation, or replacement in the event of a calamity.
You can read more about insuring buildings on the Pacific Northwest Building Resilience Coalition website.
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