Study: Builders’ risk insurance higher for wood buildings

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September 15, 2009 - Hamburg, Germany: Modern contemporary wood sided building

There is a substantial difference in the risks and insurance rates for the construction of wood frame buildings compared to concrete structures, a recent study commissioned by the Concrete Council of Canada reveals.

“Our objective with this study is to provide credible information on a level playing field basis about the use of various building products, whether it is concrete, steel or wood,” said Chris Conway, chair of the Concrete Council of Canada.

“This study is one part of a larger effort to get accurate information out there about our products, while at the same time trying to correct and clarify any misconceptions about other products.”

The Concrete Council of Canada recently released a study by Globe Advisors entitled Insurance Costs for Mid-Rise Wood Frame and Concrete Residential Buildings.

The report focuses on the difference in property insurance between wood frame buildings up to six storeys and structures using various non-combustible materials, including cast-in-place concrete, precast concrete, concrete blocks and insulated concrete forms.

“When you look at the studies we have had access to about building material choices and how they are perceived by builders and architects, wood is favoured primarily in two categories, cost and speed,” said Conway.

“Concrete is perceived as having many favourable attributes, such as resiliency, strength and lifecycle durability. Really, what this study does is it addresses the issue of perceived cost.”

Using data from interviews with three underwriters and the Canadian Wood Council (CWC), the study found that builders’ risk insurance rates per $100 monthly for comparable wood and concrete buildings are on average $0.008 for concrete and $0.053 for wood.

When the rate provided by CWC for wood frame insurance is excluded, the average rate for wood buildings rises to $0.06. The CWC rate was significantly lower than the rates provided by the underwriters.

As a result, the study concluded that builders’ risk insurance rates were 7.5 times higher for the construction of wood mid-rise buildings compared to concrete.

The reasons for this difference in the cost of insurance are the higher risk of fire and greater risk and repair costs of water and moisture damage for wood buildings.

Fire damage to a wood frame structure can result in a total loss, whereas for concrete, the financial loss is usually not as serious, the study indicates.

The study reports that only one per cent of concrete buildings are demolished during a fire, compared to eight per cent of wood frame buildings.

Moisture control is a difficult and expensive process for wood frame mid-rise buildings, which are more susceptible to mould and rot. Water damage is the leading cause of residential claims costs in Canada. Water damage tends to spread more rapidly and remain undetected longer in wood frame structures compared to concrete structures.

In addition, it is generally much more difficult for strata managers to secure adequate and affordable coverage for wood frame buildings.

Many Canadian insurance companies will not underwrite wood frame structures, or will aggressively limit their exposure for such structures, both during construction and over the life of the asset, the study states. This has led to a significant amount of re-insurance coverage for these structures being brokered through the European Union and the United Kingdom re-insurance markets.

Despite these facts, Conway said there is a perception in the industry that wood is much less expensive for the construction of mid-rise wood structures.

“What we are doing in a fact-based way is to use a third party to find out if this construction method is actually cheaper,” he said.

“We used a third party, because the study has a lot more credibility than if we did it ourselves. I think it is important to get this information out there, so people can make rational decisions about what materials to build with.”

Since insurance rates are only one of the many factors that determine the construction cost of mid-rise residential buildings, Conway said there is a need for a comparative assessment of the total lifecycle costs of wood frame and concrete structures.

As a result, the Concrete Council of Canada is currently working on a total costing study, which will consider changing technologies and related costs of building products, as well as the longer term costs of building operation, maintenance and decommissioning.

Established in October 2013, the council brings together national and provincial representatives from the full spectrum of cement and concrete manufacturers across the country.

The council’s mission is to advance the industry’s leadership in sustainable construction and promote the social, environmental and economic value of concrete, concrete products and concrete systems in Canada.

Excerpted article was written by RICHARD GILBERT


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