Insurance Costs 6 Times Greater for Wood Frame Versus Concrete Buildings

A new study of the property insurance costs for wood frame and concrete mid-rise residential buildings conducted by GLOBE Advisors and released by the Concrete Council of Canada reveals a substantial gap in the risks and insurance rates between the two building systems.

The data for the study “Insurance Costs for Mid-Rise Wood Frame and Concrete Residential Buildings” was drawn from published literature and consultations with brokers, underwriters and property managers. Interviews with three underwriters and data from the Canadian Wood Council (CWC) show that builders’ risk insurance rates per $100 monthly for comparable wood and concrete buildings are on average $0.008 for concrete and $0.053 for wood. When excluding the rate provided by CWC for wood frame insurance, which was significantly lower than the rates provided by the underwriters, the average rate for wood buildings rises to $0.06, a factor of 7.5 times greater than that for concrete buildings.

The study identified four main reasons for the higher rates:

Greater fire peril: The fire insurance portion of property insurance is 7 to 11 times higher for wood than for concrete structures, reflecting the far greater fire peril due to wood’s combustibility. Fire damage to a wood frame structure can result in a total loss, whereas for concrete, the financial loss is only partial. Only 1 percent of concrete buildings are demolished due to fire, compared to 8 percent of wood frame buildings.

Significantly higher moisture risk: moisture control is a difficult and expensive process for wood frame mid-rise buildings as they are much more susceptible to mold and rot, which is much less of an issue for concrete structures. Water damage is already the leading cause of residential claims costs in Canada. Water damage tends to spread more rapidly and remain undetected longer in wood frame structures compared to concrete structures, which can affect the safety of the structure or can even make it uninhabitable due to extensive rot and mold. BC’s “leaky condo” problems are well documented and known on an international scale.

Climate Change: Payouts from extreme weather have more than doubled every 5 to 10 years since the 1980’s, and are now a leading cause of property insurance claims.

Difficulty in obtaining insurance for wood frame structures: Many insurance companies in Canada are hesitant to underwrite wood frame structures, or will aggressively limit their risk exposure for such structures, during construction and over the life of the asset. Home warranty concerns are also highly relevant for strata owners in wood frame structures. In 2014, in BC, only 8 percent of claims filed under home warranties from multi-unit residential buildings were paid. Condo owners in wood frame buildings therefore carry greater individual financial risk, and the data shows they may not be covered by their home warranty.

“One of the key points about insurance rate setting emerging from this research was the importance of moisture control, both during construction and over the life of an insured asset. Indeed, the importance of moisture management could emerge as one of the most important takeaway conclusions of this research.” said Frank Came, senior advisor, GLOBE Advisors.

GLOBE Advisors conducted the study on behalf of the Concrete Council of Canada.

“We commissioned this study because we believe it is important for everyone to be aware of the implications of mid-rise wood frame construction in terms of public safety, municipal budgets, homeowner risk exposure and contractors liabilities”, said Chris Conway, chair, Concrete Council of Canada. “The GLOBE Advisors study demonstrates that there is a need for a definitive comparative analysis of total life-cycle costs of wood frame and concrete structures, taking into consideration not only changing technologies and related costs of building products, but also the longer term costs of building operation, maintenance, and decommissioning. Given the high costs already associated with constructing and operating a mid-rise residential structures, a concerted effort must be made to build better awareness of the factors that influence insurance rates.”

The full study can be downloaded at: http://globeadvisors.ca/wp-content/uploads/2016/03/Study-of-Insurance-Costs-for-Mid-Rise-Wood-Frame-and-Concrete-Residential-Buildings-Final-Revision-January10.pdf

Source: Concrete Council of Canada