The modular construction sector is booming, propelled by its comparative advantages for high-density building in today’s space and labor-constrained urban areas. However, the sector’s innovative construction methods often require project owners and their insurers to create bespoke policies that can address some distinct challenges.
The rise in modular construction is in part being driven by urbanization and growing demand for affordable housing. The modules are built off-site, under controlled plant conditions, using the same materials, design codes and standards required by conventionally built facilities. They are then assembled on-site, like Lego blocks, reflecting the same design intents and specifications applied to the most sophisticated traditional facilities.
Core commercial sectors such as hospitality, retail, residential, medical and petrochemical, are increasingly using the construction process – for its ability to overcome space constraints at the build site, reduce the size of the workforce and offer shorter construction times.
Other benefits include access to a skilled workforce and the potential for higher quality components by using factory-level precision to create each module.
For project owners, those are compelling benefits for a US$10 trillion global construction industry where 90% of projects are reportedly either late or/and over budget.
90% projects are reportedly either late or/and over budget.
Three years ago (subs: 2021), the global modular construction market was valued at $137.8 billion. By 2030, this sector of the construction market is projected to almost double to $271 billion. Regionally, Europe was seen as the second-biggest market (behind the U.S.), valued at $33 billion in 2021; industry projections are for a $49 billion modular construction sector by 2030, according to the Global Modular Construction Industry Research Report.
Another report, released by the U.S.-based Modular Construction Institute in 2023, found that modular construction’s market share in North America had almost tripled since 2015, to just over 6% of all construction starts.
In the U.K. housing market, a three-year-old report (2021) from Savills found that up to 10% of new homes were already being built using modern modular construction methods; the ambitions of programs such as Homes England to make 25% of affordable homes from modular construction continues to swell that share.
As construction methods shift, related risk transfer strategies are transitioning to better reflect the different risks specific to the modular sector.
For example, because construction of the modules frequently takes place at sites far away from the project sites, delivery can require more complex transportation strategies.
The transportation modes must be appropriate to the modules weights and dimensions, which can result in an increased requirement for the use of specialist “heavy lift” vessels or ocean/coastal barges.
We are aware of several projects where barges have been specifically built to transport modules, this is where suitable existing barges were not available.
With the use of “heavy lift” vessels and barging, it isn’t unusual for insurers to require specialist loading and discharge surveys to ensure that all parties are aligned on the procedures for securing and lifting goods, the quality of the vessels/barges being used, and so on. Overall, with adequate attention to detail, the level of risk should not differ substantially from conventional transport methods, although the items being moved are often heavier with wider dimensions.
Any insurance policy needs to reflect the comparatively (to traditional materials) high value of the assets now being exposed in transit; our experience suggests the value of some modules can exceed $400 million.
Project owners therefore need to ensure that their project cargo insurance policy has an adequate limit.
As delivery of the modules to project sites typically occurs later in the build schedule than with traditional construction processes, there are greater implications for the overall project if they are lost or damaged during transport.
The major transport-related risk is delay. As a result, expanded insurance cover as a defense against the potential financial impact of delays usually needs to be built into the policy for modular projects, especially since module replacement times are more extensive.
This applies particularly to projects in sectors such as hospitality, retail and residential where traditionally the risk of delay arising from loss/damage to goods during transportation was considered low.
Delays can also come at the factory level. Whatever the cause, due to modular construction’s interdependency between units in the build process, the impact of delays is accentuated in the construction schedule.
Broadly speaking, whenever project value is concentrated and the impact of construction delays is seen as more substantial, it is hard to find premium relief. The strategy then should shift to ensuring that whatever insurance policy is purchased is specifically structured to transfer the project’s distinct business risks.
If owners have robust plans to mitigate risks associated with project logistics, shipping procedures, manufacturing and labor challenges, and so on, pricing should not differ substantially from conventional builds. That said, due to the concentration of value in some of the bigger modules, higher deductibles are possible.
In short, if the project owner is using the right people and the right information is shared throughout the project community, insurers should be comfortable that the risks are being well managed.
For smarter ways to build a project cargo insurance policy to help cover your modular construction risks, please contact us.
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