When submitting a property risk for insurance, brokers are often met with a barrage of questions from underwriters regarding the building’s construction. To a client, a modern warehouse or commercial unit might look pristine, secure and entirely ‘Standard’. But to an insurance underwriter, the true risk lies within the construction materials and methods.
Understanding building construction is arguable the mist important element of property underwriting. Why? Because property insurance pricing and capacity are not just based on the likelihood of a fire starting; they are fundamentally based on how the building will behave once a fire begins.
These practices have been at the eye of property insurance underwriting ever since the first fire insurance policy was underwritten – back in 1667, following the Great Fire of London. When the city started to regenerate, building regulations were passed and introduced to regulate how buildings were required to be constructed to stop such a disaster happen again. With new disasters being presented in as the time goes on, disasters such as Grenfell Tower in 2017, continues to change building regulations with the aim of preventing such disasters from occurring again.
Buildings made from traditional, non-combustible materials will typically contain a fire to a specific zone, resulting in a manageable, partial loss claim. However, modern commercial buildings (in particular) frequently rely on lightweight cladding, composite sandwich panels to make construction easier, cheaper and less time consuming. If the wrong materials are present, what should have been a small, localised fire can rapidly escalate into a catastrophic, total-loss claim.
The Underwriter’s Point of View – Residential Risks
For an insurance underwriter, calculating risk is all about predictability and data.
Properties that would be classes as standard construction from an insurance perspective are properties that are built with traditional, highly durable materials that have decade of predictable claims data. We know exactly how these materials react to fire, storms and floods, and they are quick and easy to repair using standard tradespeople and standard methods.
The golden rule for standard construction: Are the walls made of brick, stone or concrete? Is the roof pitched and covers with slate or tile? If yes, the property is made from standard construction.
Non-standard construction includes anything that falls outside of this definition, so if the answer to any of the previous questions were ‘No’, an underwriting perspective, non-standard material often represents a higher risk for three main reasons:
- Fire Risks: Materials like timber frame or thatch roofs burn faster, thus being a greater hazard than brick, stone or concrete
- Weather Damage: Large flat roof or lightweight cladding are more susceptible to storm damage, cause leaks, and in extreme circumstances, cause collapse
- Repair Costs: Bespoke ‘eco-homes’, historic materials (like cob or wattle and daub), or prefabricated materials often require specialist tradespeople and/or materials that are hard to source, all of which drive up the costs of a claim.
Construction Qualifier – Commercial
What may appear to be non-standard on a residential property, may be completely acceptable and ‘standard’ for a commercial property from an underwriter’s perspective.
Residential standard is focused on aesthetics and domestic durability (brick walls, pitched/slate roofs). If a house is built out of a steel frame with. Metal cladding, it is highly non-standard and difficult to insure on a standard policy.
Commercial standard is focused on scale, function and open floor plans (warehouses, retail units, factories). Therefore, a steel portal frame with metal cladding is entirely standard for commercial properties.
For commercial underwriters, the biggest fears regarding non-standard construction aren’t about timber frames (as commercial buildings rarely use them), the primary focus is on how fast the fire can spread through modern industrial materials.
Cladding & Composite Panels – Post-Grenfell Property Underwriting
The insurance industry’s intense scrutiny of cladding and composite panel is direct tied to the tragic Grenfell Tower Fire in 2017. While Grenfell as a residential tower block, the disaster served as global wake-up call regarding modern methods of construction. The rapid, uncontrollable exterior fire spread was facilitated by the building’s cladding system, specifically Aluminium Composite Material (ACM) with highly combustible polyethylene core.
Sandwich/cladding panels are metal sheets wrapped around a central insulation core. That core is hidden, and can be made from many different materials. Some can be combustible whilst others can be non-combustible. Each core element will have different grades in terms of fire safety, all of which are approved by the LPCB (Loss Prevention Certification Board). The lower the grade, the easier fire can spead and the higher the risk.
Materials that can be found in Sandwich panels:
- EPS (Expanded Policystyrene). Essentially, the same material used in packaging. EPS is highly combustible, melts rapidly and acts as liquid fuel in a fire. This is a red flag for property insurers, and requires tight risk management practices in place, with insurers wanting to see evidence of these risk management practices.
- PUR (polyurethane). A very common historical insultation material. Like EPS, PUR is combustible, burns fiercely and produces huge amounts of toxic black smoke.
- Phenolic Foam. This offers excellent thermal and fire resistance compared to PUR and PIR, heavily resisting ignition. However, underwriters still need to evaluate it’s specific greading.
- Mineral Wool/Rockwool. Underwriters gold standard. Non-combustible and non-flammable. It’s made from spun volcanic rock and acts as a firestop, meaning a fire will not spread through the core of the panel.
Because you cannot simply look at a metal panel and know what is inside it, the insurance industry relies on independent certification bodies. In the UK, the foremost authority is the Loss Prevention Certification Board (LPCB). Their job is to ruthlessly test building materials against real world fire scenarios. They don’t just test if a material can burn, they test how it contributes to fire growth within a building.
If a composite panel system passes their rigorous testing (specifically the LPS 1181 standard), it becomes approved and insurance underwriters are happy with this material present in the property. More information about this can be found on the LPCB website: https://lpcb.com.
If the insured is in any doubt, it’s best to obtain a survey of the property, or ask your insurance broker if the insurer’s would provide one as part of their offering.
Author: Matt Owen-James
