Builders Educate Insurers on Benefits of Mass Timber

Demand for sustainable building is increasing as efforts to cut carbon emissions accelerate and alternative materials are being used more frequently in construction in response to the supply chain crisis.

However, some insurers remain wary of the risks, especially if products and techniques are untested in the field, experts say.

A growing number of buildings are pursuing sustainable certifications, such as LEED and WELL and other resiliency standards, said Cheri Hanes, Dallas-based assistant vice president, risk engineering team leader, at Axa XL, a unit of Axa SA.

“A natural outfall of that is our construction clients are being called upon to build with materials they haven’t built with before and it’s a pretty steep learning curve,” Ms. Hanes said.

Green roofs, low-VOC (volatile organic compound) paints and adhesives, and solar energy on roofs or at project sites are becoming more widely used, as are green building materials such as mass timber, a class of engineered building materials fabricated from layers of wood pressed together, often with a strong adhesive under great pressure.

Mass timber structures are being considered both for their sustainability benefits and as an alternative material because of the difficulty getting steel amid supply chain constraints, Ms. Hanes said.

Hundreds of mass timber projects are under construction, and even more are in design and development in the U.S., said Patrick McBride, Dallas-based head of construction property at Zurich North America.

“You see it in higher education, in administration buildings or student housing. We also see it in residential projects and in specific infrastructure projects like basketball arenas and some airport terminals,” Mr. McBride said.

Learn more about the use of mass timber in student housing in our case study.

Fortune 100 and 500 companies have started to construct office buildings with mass timber given the focus on sustainability and aesthetics for workers, said Kelly Kinzer, head of construction for U.S. national accounts at Zurich North America.

Zurich last year launched a mass timber builders risk coverage offering up to $50 million in capacity in response to demand from its policyholders. “We were hearing that there was not enough available capacity in the marketplace for mass timber,” Ms. Kinzer said.

In addition to its sustainability, mass timber is faster to construct, and because the panels are prefabricated offsite it can shorten project timelines and result in a more controlled risk environment at the job site, said Michelle Luster, corporate risk manager at Swinerton Inc., a general contractor based in San Francisco.

Initially insurers priced coverage for mass timber projects like light wood frame because there was no loss history for the product in the U.S. Now it is priced somewhere between light wood frame and steel and concrete construction, Ms. Luster said.

“My hope is that we can get insurers comfortable enough at some point in the near future to price it much the same way as they would type 1 concrete and steel,” she said.

It’s a matter of figuring out where mass timber fits from the rating perspective between frame and reinforced concrete, said Gary Kaplan, Chicago-based president of construction at Axa XL. “There hasn’t been so much mass timber construction that we have tons of data to know if we’re right or wrong,” he said.

Cyber was the same way, Mr. Kaplan said. “We drew a line in the sand and then we watched the results over time and adjusted the premium to get rate,” he said.

In certain cases, sustainable materials such as mass timber are unproven, in terms of “the composition and strength of materials, durability and how they maintain structural integrity over time,” said Doug Akerson, New York-based executive vice president and head of Munich Re Facultative & Corporate North America Engineering & Energy.

It can take some time to prove that the materials perform better under various exposures such as fire and water, said David Dow, executive vice president, property broker, at Amwins Group Inc., based in Truckee, California.

Manufacturers’ research suggests fire ratings for mass timber should be higher than for stick frame projects because it takes longer to burn, said Nick Cavaness, San Francisco-based senior property broker, at Risk Placement Services, Arthur J. Gallagher & Co.’s wholesale unit. But there hasn’t been a fire loss where insurers have been able to confirm that in the field, he said.

Mass timber, if engineered correctly, is incredibly sustainable, but the challenge is doing it right, said Christopher Smith, Shelton, Connecticut-based senior vice president of construction at NFP Corp.

Mr. Smith cited the example of exterior insulation finished system, a replacement for stucco that was used back in the 1990s that, if installed incorrectly, led to problems with water intrusion. “With mass timber you need to have a builder and engineer who know what they’re doing to get the benefits,” Mr. Smith said.

From the risk management standpoint there is a learning curve, said Yvonne Castillo, director of risk management at Victor Insurance Managers Inc. in Bethesda, Maryland.

“We don’t have the test of time with these new innovative materials to say, ‘Yes, it performs great, in 10 years we’re not going to have any structural issues,’” Ms. Castillo said.

Builders spell out benefits of mass timber

Builders and developers need to have robust communication with their insurers, show detailed information and help educate them on sustainable materials like mass timber, experts say.

Clear communication about a project can help underwriters get more comfortable in providing coverage for these risks, they say.

It has been challenging at times for construction companies to persuade insurers and brokers that mass timber is different from light-gauge wood frame, said Michelle Luster, corporate risk manager at Swinerton Inc., a general contractor based in San Francisco.

“A lot of 2020, when many of us were working full time remotely, we spent on calls trying to educate our business partners on why this material performed much like steel and concrete when it came to fire and water,” Ms. Luster said.

Proactive developers or builders raise issues ahead of time and show insurers the planning and research they have done, which in turn helps inform insurers, said Gary Kaplan, Chicago-based president of construction at Axa XL, a unit of Axa SA.

Formalizing and communicating their plan to use such materials ensures that everybody involved in the project is aligned, Mr. Kaplan said.

Mass timber projects have to be much more integrated from the design component to the architect standpoint, to the owner/developer, contractors and subcontractors, said Patrick McBride, Dallas-based head of construction property at Zurich North America.

“The material and structure is manufactured somewhere else and then it’s shipped to the site to be erected, so that integration and coordination is critical to achieve some of the efficiencies that are expected,” Mr. McBride said.