The construction industry has demonstrated remarkable resilience in the face of challenges and disruption posed by the COVID-19 pandemic — whether through practical worker safety steps at the coalface or by navigating multiple pressures in the boardroom.
Now, attention is turning back to an equally pervasive challenge that is very much coming to the fore and is set to dominate the coming years: the need to accelerate the transition to a low-carbon economy.
Toward zero-emission building materials
Net-zero construction is the responsibility of all stakeholders of a project — from owners, developers and financiers to designers and those who turn the conceptual design into a tangible asset — the contractors. With construction material production accounting for an estimated 25 percent of the total lifetime emissions of buildings, decarbonizing this aspect of construction is a key building block of the industry’s support for global emissions targets. This area is undergoing rapid change, with the sustainable use of natural materials and adoption of net-zero techniques typically replacing the production of tried, tested and established traditional alternatives, such as concrete and steel.
Producing zero-emission cement and steel depends heavily on the continued development of carbon capture and hydrogen technologies. But as the wait for these breakthrough technologies continues, considerable innovation is happening in the space of low-carbon materials, such as novel cements, material recycling — of concrete, rubber and metallurgical slag, for example — and a move back to natural materials such as timber, straw and hemp. Wood-based materials, such as cross-laminated timber (CLT) may even offer the potential for negative emissions, by "locking up" carbon in buildings that was removed from the atmosphere by trees.
With decarbonization, we are seeing innovation in the construction industry on a broad scale at seemingly breakneck speed. The question is, can the insurance market keep up with this and be the partner that it has historically been?
With global infrastructure investment of $6.3 trillion a year needed to meet development goals, the impact of these new materials alone on achieving climate change objectives could be truly profound. With new materials, of course, comes the introduction of new risks, and it is how these unknown risks are identified, managed, allocated and transferred that will be key to the part played by the construction industry — and the insurance market with which it works closely.
Managing material risk
Innovation inevitably brings with it unknown outcomes — the possibilities of failure during construction; injury to workers, third parties and the wider environment; long-term durability; and failure to perform as anticipated. Typically, new materials and ways of working are introduced gradually with innovation juxtaposed with the concept of prototypical design, and the construction industry and insurers working closely to apportion who takes what risk. To load any one party with all the risk inevitably stifles progress and the likelihood of a step-change toward achieving desired objectives is held back.
Isabelle Kowalski, global head of construction at SCOR, cites the example of the move away from asbestos in France: "The ban of asbestos from building materials for safety reasons led to huge decennial losses: liquefaction of window joints and collapse of roofs of corrugated sheets; we had to replace asbestos — that had known characteristics — with new materials that had unknown characteristics." The challenge for the insurance market is pricing often-unknown risks while designing affordable products that cater to the needs of the construction industry.
Partnership is key
With decarbonization, we are seeing innovation in the construction industry on a broad scale at seemingly breakneck speed. The question is, can the insurance market keep up with this and be the partner that it has historically been? Timber frame building, and specifically the use of CLT, is a good example: The widespread and rapid increases in adoption in many regions has been accompanied by an increased frequency in fire losses and a resulting contraction in insurance capacity within the market.
This demonstrates the need for the construction industry and insurance sector to work together toward a common goal. Insurers recognize that they have an important part to play in facilitating the transition — from deployment of their risk management expertise, global overview and supporting data, to their provision of a financial backstop, tailored investment strategies and role in incentivizing early adopters.
The insurance market is uniquely placed to catalyze a dialogue among construction industry stakeholders about innovation on the horizon and how the new risks can be identified, allocated and managed appropriately — particularly with regard to new building materials. In areas such as tunneling and fire risk, we have often seen practical loss experience drive regulation and a constructive dynamic between the two industries to develop risk management solutions. With climate change, things are likely to be different.
The regulatory agenda will be broader, with an objective to support the uptake of new materials while balancing safety concerns. The French government’s mandate that public buildings be built from at least 50 percent timber or natural materials is one example. While experience will, as it has always done, play a part in product design, terms, conditions and risk pricing, new materials and ways of working driven by decarbonization objectives will be employed, because they have to be.
Kowalski summarizes the conundrum very well: "Our challenge is global and spans across the entire construction industry. Construction companies and developers need to find insurance solutions, brokers need to find capacity and insurers need to understand the risks. The end-goal is to reduce carbon dioxide emissions around the world. Every country is trying to find a solution, innovation is coming from everywhere, and good ideas, as well as increased exposure, need to be spread rapidly around the world. We are not in a situation of 'innovate to be the first,' we are in a situation of 'innovate together to save all.' We cannot fail. This will require collaboration between key professionals, sharing new and best practices and helping each other."
As we have seen through the COVID-19 pandemic, when the world works together, amazing strides can be taken and outcomes achieved. There will perhaps not be a better example of history needing to repeat itself.