Construction insurance and innovation

Competition, the first driver of innovation

Today, it is the cities and companies which are most keen on architectural innovation. By initiating programs to build original buildings designed to promote their image, Dubai, Shanghai and soon Qatar took over New York, Chicago and Paris: the tallest towers, trendiest airports, nicest museums, most friendly stadiums, and the most ecological headquarters.

Past know-how is no longer sufficient. To meet market needs, manufacturers have invested heavily in research. They have developed innovative products with nanotechnology at the core of materials, development of concrete types and evolution of components. It is with these materials that more impressive buildings are built.

Renowned architects and design offices are in search of eye-catching projects. They are out to meet the challenges posed by governments, cities and companies and to seek large structures that could strengthen their image by benefiting from the economic fallout and tourist flows: This is the "Bilbao effect".

Environment, the second driver of innovation

Allianz Arena © Maximilian Dörrbecker [6], CC BY-SA 2.5 [7]

Environmental friendliness is a recent must for society. Often imposed by legislation, this approach resulted in energy and raw material savings and reduction of greenhouse gases. Environmental protection also entails a cost, and very seldom does a project owner increase spending on environmental grounds. Quite often it is the law which compels owners to comply with new rules, particularly in developed countries where environmental requirements are more stringent.

Insurers and innovation

Insurers are often reluctant to cover construction risks using new materials and innovative architectural designs.

Bergisel Jump Springboard by Zaha Hadid

While common techniques and conventional materials have long been trusted by insurers, it is a totally different story for new materials that are used for the first time.

Insurers usually intervene at two particular stages in the life of a project: once to cover the construction itself and a second time to offset the disruptions which may occur after admission of the project.

Construction insurance

When underwriting a contract, the policyholder, usually the builder, is required to inform the insurer about the use of uncommon techniques. The insured is obliged, under penalty of law, to specify any kind of innovation in the risk declaration form. This statement stands as a contractual obligation.

The use of new pioneer architectural materials and/or techniques has only added a new constraint.

The insurer will analyze the impact of novelty during the construction phase. Innovation can involve all or part of the project. Very rarely does it concern the entire construction program. After reviewing the case, the insurer may exclude certain risks or damages to parts of the work or to the property. Some exclusions may be temporary and, therefore, disappear provided that the construction does not sustain any failure at a given period of time.

The insurer may also limit its liability per claim and per insurance period. It can use high deductibles so as to get the insured involved in the risk taking.

For very complex works, the involvement of one or more consultants and experts is required.
It is common for non-standard sites to be presented to the insurer. This applies, for instance, to the Khalifa Tower in Dubai, the entire Palm Island housing complex also in Dubai, the Bilbao museum (Spain) or to the Confluence museum in Lyon (France). These works, often prototypes in bold shapes, defy the laws of construction. Delays in obtaining insurance and reinsurance coverage are likely to affect such projects.

Blockages are usually not definitive. Further scientific analyses are conducted and in some rare cases, abandonment of innovation is necessary.

Repair of damages consecutive to the reception of work

To protect buyers of real estate and moralize the construction market, some countries like France, Sweden, Finland, Spain, Italy, Denmark and the Maghreb countries require the underwriting of a decennial or a long term insurance policy. This policy covers damages occurring after admission of the work. All stakeholders taking part in the construction process are subject to this requirement. In France, the law requires builders to purchase this cover before the start of construction, hence, the blocking of highly innovative projects and the lengthy and difficult negotiations between builders and insurers.

In some countries professional liability insurance is required for architects and designers.

Insurance in support of innovation

© Andreas Tille [8], CC BY-SA 3.0 [5]

Despite some reservations, insurance does not stand as an obstacle to architectural innovation and remains an essential component of the construction process.

A survey conducted in Japan analyzing thirty-eight insurance schemes in the world, showed that insurance is a regulator of the construction business

For a more active support of insurance to innovation, national regulations are required to back up the construction sector by:

• setting up a directory of new products or innovative systems that are tested and recognized by scientific centers and building experts, 
• centralizing technical bodies entrusted with marking and certification, 
• conducting a joint international study designed to identify good practices and introduce innovations based on their actual effectiveness, cost reduction and reliability, 
• establishing standard insurance contracts.

The world’s tallest towers