The New Timber Construction Era

Why risk managers are taking up the cudgels for sustainable timber construction, and how the insurance market can be brought on board.

Although wood has been used as a building material for a very long time, the great construction success has only occurred internationally in recent decades. This has also put the insurance market on the map. But insurers have been slow to embrace the new developments.

In the absence of empirical values or broadly based studies, reservations were voiced at the beginning against the new timber construction era. On one hand, because of a supposedly increased fire risk or insufficient experience with the behavior of the building material in case of fire. On the other hand, because of the possibility of serial damage in the serial production of components, which could have massive consequences in the construction and assembly insurance, as well as in the liability insurance. Finally, design activity was also a concern for insurers.

In the meantime, empirical values are available. It has been shown that a differentiated approach to risk assessment is required in industrial timber construction. Glulam, for example, as used in the Milwaukee tower, achieves a fire resistance of 120 minutes and more. In addition, this wood has a higher stability in case of fire than steel. The outer layers do not burn but char, forming a protective layer so that the load-bearing wood core remains intact.

With regard to the residential tower in Milwaukee, specific tests were carried out by the U.S. Department of Agriculture’s Forest Products Laboratory. The results were positive, so that the authorities and public fire protection officers, who have the welfare and safety of the residents and fire departments in mind, also confirmed the feasibility.

Hard market for the construction industry

The occurrence of fire damage on construction sites is a significant risk. This damage is mainly caused by improper hot work but occurs to a much lesser extent during the construction of a wooden building. The construction industry is countering with appropriate processes to take precautions in organizational fire protection. Likewise, various interest groups have published guidelines that continue to sharpen conscious handling. In fact, there are no indications or statistics to prove that, despite the growing share of timber construction in the total insured construction risks, there has been a disproportionate increase in losses.

However, the construction industry is not spared from the hardening of the insurance market. The extent of the rising premium costs and the shortage of capacities sometimes lead to a massive impact on the profitability of individual project contracts or even entire companies. Even more so than for construction and erection insurance, this applies to the area of planning liability. Poor technical results of insurers, especially due to major claims, are negative for risk appetite. The consequences: a high need for information in the risk assessment phase, rising premium costs or deductibles, and coverage restrictions in insurance protection (for example, for fire damage in facade construction). A prominent example: the major fire at London’s Grenfell Tower in June 2017, where the facade construction, which, however, was built of conventional materials without wood, created a chimney effect and cost the lives of more than 70 people.

Magic word „risk transparency“

As the investigation results at the Ascent Tower project show, it is important to differentiate. Individual cases that are not related to wood as a building material must not lead to erroneous conclusions.

Also, in negotiations with the coverage market, it is essential to make the characteristics of the building materials transparent and to work out the sensitive points for the risk assessment. GrECo supports clients in placing corporate and project insurance policies on the national and international insurance market. A major focus is on the joint development of risk transparency; an aspect that is also served by the general education provided by organizations such as the “Structural Timber Association” or the “UK Timber Frame Association”. These educational activities are relevant for the London insurance hub and can positively influence risk appetite or lead to more open discussions with insurers.

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Richard Krammer

Group Practice Leader Construction & Real Estate

T +43 664 810 29 63

Heavy storms, wildfires and a giant explosion – the catastrophes of 2020

Beside the Covid-19 pandemic event which is bound to cost insurers up to 80 billion US-Dollars, the usual Natural Catastrophes (NatCat) scenario was also present in 2020 and, triggered in many ways by climate change, caused an overall worldwide loss of 210 billion US-Dollars, of which 82 billion were insured (an increase of 40 % in relation to 2019). Events occurred on a global level, but worst hit last year was the Western hemisphere, particularly the United States.

After a few years of lesser activity there was an extraordinary hurricane season – the number of storms added up to 30 events, so in addition to traditional names starting with a letter of the Latin alphabet the Greek alphabet had to be used, the last storm being called Iota. The most severe storm, Laura, reached a speed of up to 240 km/h and flooded an enormous inland area in the state of Louisiana. The hurricanes caused a loss of 43 billion US-Dollars, of which 26 billion were insured. This high insurance share could regrettably not be seen in the Eastern hemisphere, where large-scale destructions by cyclones and floods in China and India remained almost uninsured. Both frequency and energy of these storms are attributed to the constant warming of the water surface of all oceans.

High temperatures even in the Arctic region and Siberia combined with long periods of drought lead to another wildfire scenario that was particularly high in the Western states of the US, like California and Oregon. Beside the huge loss of wooded areas, about 14,500 buildings and homes were destroyed in these two states alone. Weather conditions on the large plains of the American Midwest caused heavy thunderstorms and tornadoes, destroying several million hectares of corn and soybean crops.

In Europe, the NatCat experience remained relatively low last year. The worst events were again linked to climatic conditions – typical rainfall events at the end of the summer were extremely heavy on the Mediterranean coasts of France and Italy, the resulting floods destroyed hundreds of homes and traffic infrastructure, the overall loss makes up for most of the continent’s NatCat loss balance of 10.6 billion US-Dollars.

Europe was also the continent to be hit by two major earthquakes in one region, Northern Croatia near Zagreb, causing property damage of at least 2 billion US-Dollars.
All natural disasters claimed some 8,200 lives, the toll being particularly high in coastal areas and in the developing and emerging countries.

Due to the Corona pandemic and the restrictions on international travels, the number of man-made disasters, like aircraft crashes, ship disasters and terror attacks remained very low. There was one shocking event, however, the explosion of August 4th, that destroyed the port and a part of the city of Beirut, causing an economic loss estimated at 7.5 billion US-Dollars. The reason was the storage of large quantities of ammonium nitrate, a highly explosive chemical, over a long period without taking a minimum of precautionary measures.

(Sources: Munich Re, Swiss Re, Artemis)

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Andreas Krebs

Andreas Krebs

Head of Insurance Mediation Services

T +43 5 0404 229

Well protected against weather extremes

Well protected against weather extremes

The GrECo Risk Engineering GmbH offers individual analyses for protection concepts against floods & Co. A targeted risk management can protect your business facilities or the appropriate crop insurance can minimize the risk of harvest loss as well as seed and fruit damage.

If you think back to the beginning of the Corona crisis and the time in the home office, you will especially remember the beautiful April with early summer temperatures that made the lockdown and exit restrictions a challenge.

The ZAMG (Central Institute for Meteorology and Geodynamics) speaks of the fourth warmest April since the beginning of measuring history (i.e. since the 18th century) and of one of the driest springs ever. There were almost 20% more hours of sunshine than on average (+ 55% in April) and temperatures were almost 1 °C above average (+ 2.1 °C in April). In the months of March and April there was 45% less precipitation than the long-term average (1981-2010), in Eastern Austria even 71% less. The rain in May could not compensate the extreme dryness of the previous months. Overall, this year there was about 30% less rainfall.

Due to the mild beginning of the year, many plants sprouted up to three weeks earlier. The rain-prone month of May could just about prevent a catastrophic crop failure. Nevertheless, the missing harvests resulted in a lack of grass cuttings, which are urgently needed as fodder for the animal supply. Conclusion: In addition to the corona crisis, the situation for agricultural enterprises has worsened immensely.

The number of extreme events is increasing worldwide

An ongoing project of ZAMG showed that since 2000 a significant increase of weather conditions with bad weather potential of 30% – 50% is visible. This is, among other things, a direct consequence of the increase in the water vapor content of the air caused by the rise in temperature. Due to the increasing warming, the thunderstorm season in Austria is extending towards spring and autumn.

Evidence of the increase in such weather extremes was already evident in June. The long heavy rainfall in Lower Austria led to flooded fields, debris flows, local flash floods, roadblocks, flooded cellars and demanded about 100 storm-operations by the local fire departments. In July, the series of storms continued in the western provinces of Austria such as Salzburg and Tyrol.

The trend towards such extreme events is also evident worldwide. Severe thunderstorms with heavy rainfall swept over areas of the USA, while at the same time heat waves were announced in other parts of the country, such as California. China was hit by a catastrophic flood at the end of June, triggered by the heaviest rainfall in 70 years. The rising number of forest fires, as e.g. in Australia and the USA, is also attributed to the consequences of the weather extremes.

Preventive protection concepts against floods & Co.

Unlike weather phenomena such as drought and aridity, hydrological hazards such as floods, debris flows and surface runoff are much more predictable and can be dealt with at a local level. In general, especially in Central Europe, superregional flood protection is taken over by the state. However, if the properties of companies are located in areas that were not designated as flood areas at the time of construction, it is necessary to take your own preventive protection measures.

The GrECo Risk Engineering GmbH (GREG) offers consulting services such as risk identification and analysis, evaluation and risk assessment of threat potentials from natural disasters as well as preventive action planning. In this way, technically efficient and economically feasible solutions are developed together with the companies in order to be prepared in case of floods, for example, and to prevent potential damage and shutdown of operations.
The risk consultants of our GREG team rely on internationally proven protection measures and the state of the art in natural hazard management and flood protection in particular.

Tailor-made insurance solutions covering property damage and business interruption due to natural events round off an effective protection concept.

Crop insurance as a protective shield for farmers

Due to climate change, farmers also face new challenges in their risk management. Beside sustainable farming methods, dry periods and drought can often only be countered with artificial irrigation. Since such a measure is tied to a multitude of factors (infrastructural conditions, available water resources, soil conditions, etc.) and generally requires very high investment costs, GREG offers individual analyses, which at the same time provide a basis for appropriate insurance protection.

A risk-adequate crop insurance contributes to keeping the economic risk of losses and damage low by providing appropriate coverage.

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Günther Kundela

GrECo Risk Engineering

Tel.: +43 5 0404 354

High risk, excellent fire protection

Competitive insurance market for timber industry and recycling companies

The premiums in corporate property insurance are currently rising in all industries and loss-affected insurance contracts and types of establishments that are classified as critical, such as the timber industry and recycling companies, are especially hard hit by the consequences.

The triggers for market hardening were primarily the negative results of international corporate insurers and the lower number of providers as a result of company mergers. In addition to the premium increases, the different, more cautious risk and underwriting policy is also particularly evident among insurers with less capacity available for “risky” industrial risks (compared to the “normal” core business) on the market.

Few providers

A particular challenge at present is posed by the placement of insurance solutions for timber processing businesses and recycling companies: there are currently very few providers that accept requests for these industries. The majority of market players refuse to submit an offer from the start because claims experience does not suggest a positive business development. The remaining insurers now focus mainly on compliance with safety standards, preventative and precautionary fire protection, and the general attitude towards risk management in companies. They are checking in detail the extent to which their minimum requirements have been met and are also requesting additional detailed information on the current risk situation.

Risk mitigation measures

The insurability of their member companies has been a hot topic for the professional associations of the aforementioned industries for years, which is why the decision has been taken proactively to help improve the claims situation. The professional association of the Austrian timber industry and recently the association of Austrian waste disposal businesses, for example, has published its own guidelines for fire protection. These were produced in conjunction with fire protection experts and the insurance association. This means that specific recommendations for improving risk quality are provided, along with an overview of the fire protection measures requested by many insurers.

The extent to which existing fire protection equipment meets the recommendations of these guidelines can be checked using GrECo’s self-assessment tool. A corresponding report is generated after all relevant data has been entered, and clearly depicts the current risk situation. From the report, our risk engineers can then develop a tailored set of risk improvement measures.

GrECo Risk Engineering GmbH is pleased to offer advice here and is also available for individual analyses of the existing risk situation and to specify risk-improving measures.

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Rudolf Schiel

Competence Center Manager Property

T +43 664 822 27 58