How to risk manage the industry’s most revolutionary process

29 March 2019

Quick, clean and affordable, modular building methods were the talk of MIPIM 2019.

Modular and off-site construction. Futuristic cities constructed using artificial intelligence (AI). Smart buildings optimised by incorporating the Internet of Things. The emerging processes and technology that will propel the property industry into the future were the talking points of the recent MIPIM 2019 conference.

In mid-March, I joined hundreds of delegates to mark the 30th birthday of MIPIM. Unsurprisingly, the event’s theme, Engaging the Future, was on many people’s minds, with developers and owners focused on fresh ideas and new tech.

In conversation, my property industry colleagues referenced the subjects mentioned above as priorities, along with the following:

  • Structural latent defects
  • Live / work communities
  • Biophilic design
  • Driverless vehicles

Also discussed were ways in which construction insurance would respond to the risks arising from these advances, plus insurers’ attitudes to how far individual technologies within these advances are seen as being proven or prototypical risks.

Discover risk and insurance issues surrounding many of these topics in “How do you see the future of the property industry?” a construction whitepaper we wrote to answer the challenge for fresh thinking issued by MIPIM’s managing director Ronan Vaspart.

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Following MIPIM, we consulted JLT’s construction insurance experts to provide a detailed response to developers’ and owners’ concerns related to the most talked-about topic, modular and offshore construction (also known as modern methods of construction or (MMC)).

Read this blog to find out more. And download the whitepaper to explore the risk and insurance issues surrounding emerging construction tech and processes further.

What are the key risk areas related to MMC?

Offsite manufacturing is on the increase. Prefabricated building elements, made in factories and transported to building sites fully formed, are transforming construction, reducing both costs and build times.

MMC has many advantages: Site downtimes caused by poor weather can be mitigated for, when elements such as walls and floors are assembled in clean, dry factories.

Safe working practices can be more easily enforced with MMC, too. 

The downsides?

Modular suppliers will often require longer lead-ins, depending on the complexity of the project, and particularly if they are based overseas.

MMC - What MIPIM delegates had to say:

Owners, developers and risk managers talking to JLT’s MIPIM team voiced additional concerns related to MMC.

These concerns include the need for prefabricated items manufactured in a different country to comply with the building standards of the country where the project is located. In an increasingly globalised market place, the skills required to manage geographically and jurisdictionally diverse supply chains supply chains are changing. Read more about this in Edition 5 of Building Sight.

The issue of defects was also raised, namely, if a component of a pre-fabricated unit turns out to have flaws, does that mean the whole is deemed to be defective and therefore not insured.

There is a lack of understanding of the construction risk and insurance issues arising from MMC. Firstly, the use of these components can cause complications under Construction All Risks (CAR) policies. CAR insurance indemnifies for damage to the project works but there are a number of variants of cover which are available in relation to damage arising from defective works.

The most basic of these variants excludes all damage arising from defects. More developed versions provide greater protection including options for covering damage but excluding the defective work.

This is where the complexity of modular or prefabricated components causes an issue. These materials are considered by insurers and loss adjusters as discrete elements of the project works, irrespective of their individual complexity. Therefore a defect in one element of a modular plant room is enough to consider the entire item as defective and therefore potentially excluded. This interpretation affects the insured most severely where:

  • The defect is very minor in the scale of the modular element
  • Is restricted to one component of the modular element
  • Damage is caused to parts of the modular unit that are not themselves defective but are excluded nonetheless.

This situation can be avoided but only with very careful drafting of a bespoke insurance policy, prepared by a specialist insurance broker. The other area of concern is in relation to post completion defects, the consequences of which can be covered under third party liability (TPL) policies. For many years, the terms “completed operations”, “completed contract works” and “products” were regarded as synonymous in relation to post-completion defects under construction TPL insurance.

How to get the best construction insurance terms for MMC?

Specialist construction insurance brokers have expert knowledge of MMC risks, along with good relationships with the relevant insurers. Your broker’s role is to make the risk more attractive to underwriters. By doing this, they reduce the potential restrictions of cover or increase in pricing.

Peter ChesterfieldTalk to an expert

For further information please contact Peter Chesterfield, Partner, Construction Business Development Team on +44 (0)20 8108 9324.

Make construction risk mnagement and insurance work harder for your company

Find out more about risks related to modular construction

Discover how developers' insurance claims of the past are impacting the current risk landscape in The Construction Insurance Claim Still Costing Property Developers Today, our previous MIPIM 2019 blog.

Find out why more developers are taking out structural warranties in our blog Latent Defects Insurance is on the Increase.