Modular construction is a way to cost-effectively meet the United Kingdom鈥檚 demand for new buildings while reducing carbon emissions. But there are various risk issues to consider upfront to reduce the number of expensive and often lengthy insurance claims if things go wrong. Involving risk engineers and underwriters when making decisions is key to avoiding or mitigating problems down the line.
In 2023, Europe’s tallest modular residential skyscraper was completed in Croydon, South London. Construction of the 163-metre-tall structure was estimated to have been about 50% quicker than for an equivalent traditional build. The architects of the tower said they believed that carbon emissions associated with the project were about 40% less than they would have been for a more traditional building project.
Modular construction whereby 3D structures such as fully-fitted apartments and kitchens, and 2D panels for walls or flooring are built offsite, can speed up the construction process. Using modular units can reduce the costs involved in a large-scale build, as well as reduce building waste and the carbon emissions associated with transporting materials to and from a building site.
The UK construction market continues to face a shortage of skilled labour in the aftermath of Brexit and new visa requirements, amongst other factors. Because modular units are manufactured in a factory setting using artificial intelligence and other technologies, fewer skilled workers and tradespeople are needed onsite unless something goes wrong.
The factory-build process also means there is likely to be less working at height, and fewer slips and trips than on a traditional building site, meaning health and safety can be improved. As they are transported from the factory to the site, modular units often have less exposure to adverse weather conditions than structures on a conventional building site.
Water damage
While there are clear cost benefits to using modular construction techniques, there are also risks that firms should consider when embarking upon projects.
A major risk, and one for which we have seen emerging claims, is water damage. While this is a risk on any building project, it can be exacerbated by the nature of modular construction in which units are often placed on top of each other via crane, rather than the more traditional ground-up approach.
If water ingress is discovered, it can be more challenging to locate the source of the problem. And the need to dismantle units or adjacent structures to get to the root cause of the issue can result in damage to other parts of the building such as flooring or walls.
The people involved in putting the units together in the factory are not necessarily site-qualified. This means that if a problem arises, a new, outside team of plumbers, electricians or other experts must be brought in to rectify the problem, often adding to costs and potential time delays.
Weather-related risks
Weather is another factor that needs to be considered when planning a modular build. Although units are not exposed to the weather while in the factory, they can often become exposed onsite.
For example, if units are delivered but then there is a delay in another aspect of the building project, they may be left in conditions where they are inadequately protected from adverse weather.
In one such instance, a delay of three months meant that units that were originally intended to be installed in the summer months were instead put in during the autumn and winter, and suffered rain damage.
Possible snagging
There are other issues that could arise with modular construction that may result in a lengthy process to rectify problems and potential insurance claims.
For example, if there is a snag with a unit such as ill-fitting roofing or gaps in the flooring, this is likely to be replicated across tens or even hundreds of units since they have all been produced in the same way. Again, rectifying these issues requires bringing in experts who, on a more typical building project would likely be onsite already, and able to identify and fix a problem more quickly and cost-effectively.
While experts say the fire risk associated with modular construction is comparable to that of a traditional building, if a fire does occur during the construction process it can be much more difficult to remove the smell of burnt materials from pre-fabricated units.
There are also risks of damage to modular units when they are being transported or craned into place.
Talking about risks and coverage
Beginning discussions with underwriters and claims professionals in the early stages of planning a modular build project can help to allay and offset many concerns that construction firms may have. For example, potential professional indemnity or employers’ liability risks can be assessed and coverage put in place.
Construction firms are well-acquainted with the need for coverage such as delay in start-up policies. But establishing good communication between client, broker, underwriter and risk engineer about the nature of a project can help to ensure that coverage reflecting the nuances of modular construction is in place and well understood.
If problems arise during a project, it is helpful to discuss these with a risk engineering expert as soon as possible so that remedial actions can be taken swiftly to avoid lengthy delays and mounting costs.
Using modular units can reduce the costs involved in a large-scale build as well as reduce building waste and the carbon emissions associated with transporting materials to and from a building site.
It’s important for construction firms to understand how serial loss clauses might relate to a problem that is replicated over numerous units and over what timescales.
Communication to understand the nature of deductibles and how a fortuity might be considered in the event of weather-related water damage, for example, is vital to ensure that there is clarity about what insurance covers.
Onwards and upwards
Other countries have been making great strides in modular construction and we can expect to see the United Kingdom follow suit as firms seek to meet the demand for affordable housing. According to the Royal Institution of Chartered Surveyors (RICS), 45% of all new homes in Sweden are now built using some form of offsite construction. In Japan modular construction accounts for about 15% to 20% of new homes.
Although some UK construction firms have recently become somewhat less confident about the use of modular methods, in part because of some of the associated risks, there seems little doubt that the cost-effectiveness of these projects, as well as their potential for reducing the carbon footprint of large builds, means they will continue to play a major role in the UK market.
As our UK clients embrace this new way of working alongside other modern methods of construction aimed at reducing emissions, we want to work with them to understand and share risk knowledge and help to ensure that the cost and environmental benefits of modular construction can be realised.
