Article

Building with Cross Laminated Timber: Insurance Considerations

The use of cross laminated timber or "CLT" is increasing in the construction sector, including redevelopment of existing assets.

The utilisation of sustainable materials will only increase as the global economy further embraces the need to reduce the environmental footprint and ensure that environmental, social, and governance measures and targets are met.

With corporate entities looking to positively offset their carbon impact, this is raising a key issue with insurers. Unfortunately, the insurance industry has yet to fully embrace the use of CLT, largely due to the lack of understanding of the long-term effects of CLT on underlying factors like fire and water ingress.

What is cross laminated timber?

CLT is a prefabricated wood-based panel that can be used to create environmentally sustainable structures. It often utilises low grade, low value timber to create a high-value structural material. CLT is constructed by bonding lengths of timber in a lattice pattern, often with the use of adhesives and/or wooden dowels. Testing of CLT has increased in recent years and much work has been undertaken to understand its structural performance and fire resistance.

Benefits and concerns

CLT has a number of benefits:

  • Environmental – CLT is often viewed as a positive contributor to environmentally sustainable buildings due to its core components coming from a replenishable source, and its ability to sequester carbon during its in-use lifetime.
  • Costs – CLT can often provide a swifter project delivery, which can help constrict costs.
  • Versatility – CLT has many potential applications, including offsite modular systems, load-bearing elements, services cores, and internal wall finishes.
  • Aesthetics – The use of CLT as an internal finish material has appeal within modern, contemporary buildings. It provides an immediate visual reference to the environment and the use of exposed timber is increasingly popular within the design community.

There are, however, a number of perceived concerns:

  • Fire – There are concerns about how buildings constructed of CLT will perform in a fire and this has been the focus of much research and testing in recent years. Adequate fire performance can be achieved by CLT, although this is affected by the number of timber layers and adhesives used.
  • Performance – As CLT is a relatively new construction material to the UK market, question marks have been raised with regard to longevity; how it will perform over an extended period of 50 years or more. CLT has been used more extensively in Europe, USA, and Canada where the knowledge base on whole-life performance is well developed.
  • Insurability – There are significant challenges to overcome in the insurance industry in respect of CLT.

How the insurance market views CLT—and what can be done about it

CLT is a relatively new construction method in the UK and, as a result, the insurance market's exposure to such risks is limited, both in terms of construction and of the built asset. Insurers do not have the volume of loss history to accurately assess claims performance in the same way as concrete floored buildings, for instance.

As more buildings are constructed using CLT, the insurance market’s knowledge of claims performance and risk factors will increase. In the current transitioning market conditions, insurers' are taking a very conservative view of CLT and seeking to limit their exposure (as they are with any risk that sits outside of the core appetite). With this in mind, the insurers' appetite may also be influenced by the extent of CLT within the building structure.

The provision of a sprinkler system within proposed buildings is likely to be essential for any insurers' looking to participate on projects where CLT is present—indeed, it will be a requirement for residential buildings due to the Grenfell Tower fire. Without a sprinkler system, it may prove extremely difficult to obtain terms that are not cost-prohibitive to procuring insurance.

Additionally, where Insurers are limited on project capacity, an insurance placement will typically involve a larger panel of insurers. This could potentially further increase the premium and limit the policy coverage.

As well as the challenges above, the real estate sector has unfortunately experienced a number of large fire losses in the UK, albeit with little or no implication to CLT being a factor, but these have underlined the underwriters’ caution to adopt a conservative approach when it comes to assessing newer materials like CLT.

There are a number considerations and factors to acknowledge and ascertain ahead of any projects—especially those involving CLT—but our opening advice is to engage with your insurance provider as early as possible in the process. This will give you an opportunity to fully outline the project and gain an understanding of the insurer's information requirements.

Summary

The use of timber in construction and buildings has many benefits in relation to environmental sustainability and operational performance. CLT is a versatile material and can be used in a variety of applications. However, critics say that research to date on fire safety is inadequate.

The use of CLT will undoubtedly increase due to the advantages it brings, particularly within the development community where there is a need or desire to demonstrate environmental benefits.

As more buildings incorporate CLT, the insurance market's knowledge of claims performance and risk factors will also increase. In the current transitioning market conditions, where insurers are taking a very conservative view of CLT and are seeking to limit their exposure, it is essential to plan ahead and be prepared to meet requirements to obtain coverage.