ESG Exchange: Making resilient repairs work

Flood in UK street
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With new measures being introduced to facilitate resilient repairs, Rachel Gordon investigates whether these steps go far enough to help insurers and their customers when faced with building claims.

It’s now all systems go for building back better with more resilient repairs – measures to facilitate these are due to come into force on 1 April 2022 in the form of the Flood Reinsurance (Amendment) Regulations 2022. The scheme allows Flood Re to pay claims up to £10,000 for resilient repairs, over and above the cost of like-for-like reinstatement of flood damage. This should enable homeowners to return more quickly following a flood and reduce insurers’ claims costs.

The regulations are the result of work from across the insurance sector, including insurers, loss adjusters and the British Insurance Brokers’ Association, via the property resilience roundtable, overseen by the Department for Environment, Food and Rural Affairs.

Government guidance says participation in the measure is voluntary, but insurers “will be encouraged by Flood Re to offer this to their entire customer base”.

More broadly, a two-pronged approach is needed, so on the one hand, more responsible planning and higher standards of construction and, on the other, more resilient repairs.

Axa has taken a prominent role, and its report, which was produced in October 2021: Building for the future: Recommendations for safe and sustainable planning, called for action on building insurability – with a legal duty placed on developers; modern methods of construction – risks and benefits, and an online database; flood risk – the need for continued investment; and responsible development – encouraging smaller developers.

Dougie Barnett, director of mid-market and customer risk management at Axa UK, says: “Insurers need to be actively involved at all stages of the design and construction process, and the principles of risk assessment, safety and insurability must be developed and enshrined at all stages of the planning process.”

A patchwork of legislation

A raft of forthcoming legislative changes should reduce risk, and this includes the Building Safety Bill, which was launched partly in response to the cladding crisis, and a new regulator.

Barnett wants to see a Building Safety Regulator that, he says, is: “Fully equipped to monitor and enforce compliance with buildings standards. A strengthened regulator will enable greater oversight across the lifecycle of buildings, while also clarifying the responsibilities of all duty holders and, ultimately, better protecting lives and properties.”

The bill, which is progressing through parliament, will also establish – on a statutory basis – the requirement to demonstrate competency among operatives.

John O’Shea, head of property damage and recovery at law firm BLM, comments: “Placing a new legal duty on developers to have due regard to the insurability of buildings can only be a good thing, and it will ensure that safety and sustainability remain a priority throughout the project.  Ultimately, it will depend on government appetite to seriously consider this proposal, and whether it sees this as supplementing its current focus on building safety.

Placing a new legal duty on developers to have due regard to the insurability of buildings can only be a good thing, and it will ensure that safety and sustainability remain a priority throughout the project
John O’Shea

“The government has – in the past – been swift to respond to concerns around construction, such as the issues concerning cladding following Grenfell. The fact it has been supportive of issues and resolutions, some of which were spearheaded by the insurance market, hopefully means it can be persuaded to act just as quickly here.”

Paul Lowe, partner at law firm Kennedys, says: “The government has made a commitment to boost resilience in the built environment as a key part of its strategy to reach Net Zero emissions by 2050. Various legal proposals have been mentioned (including updating the building regulations and the National Planning Policy Framework) to support the adoption of passive cooling and sustainable drainage systems in developments. It has also been suggested that the Building Safety Regulator may be given the powers to regulate building resilience.”

Axa also wants a legal duty on developers “to have due regard to the insurability of buildings at all stages of the process, from the very first planning application right through to the completion of construction”, and for this to be included in the forthcoming Planning Bill. However, there are uncertainties here, as rumours suggest that the bill may not happen and instead there could be tweaks to levelling up legislation.

Ralph De Mesquita, senior risk analyst and technical team leader at Zurich Resilience Solutions, adds: “The time is right to consider overhauling the current approach to protecting new buildings. New developments in flood-prone areas, for example, are required to have Flood Risk Assessments that take account of climate change. These assessments don’t go far enough especially when it comes to surface- water flooding – a risk made worse by the proliferation of hard surfaces in urban areas.”

A need for Schedule 3

There is widespread support for the implementation of Schedule 3, which has not yet been passed as part of the Flood and Water Management Act 2010 in England, although it has in Wales. This is to tackle the growing incidence of surface-water flooding.

O’Shea says: “Schedule 3 of the Flood and Water Management Act is a crucial part of the flood management story. It will give powers to local authorities to approve new drainage systems and the way they connect to public sewers. It is, therefore, an important part of flooding-related legislation and a real error by the government not to have implemented these measures yet despite consulting on the proposals as far back as 10 years ago.”

“If Schedule 3 is enacted it would take away the automatic right to connect to public sewers and would give additional powers to require sustainable drainage systems to be included”
Ralph De Mesquita

The government is conducting a review on the issue, due in September 2022. Meanwhile, it was reported that Schedule 3 could be introduced in the coming months to align planning policy that is related to sustainable drainage systems as recommended by the Climate Change Committee.

De Mesquita, adds: “Surface-water flooding cannot be solved by conventional drainage. If Schedule 3 is enacted it would take away the automatic right to connect to public sewers and would give additional powers to require sustainable drainage systems to be included. Sustainable drainage offers multiple benefits to the wider community and environment, also having low maintenance costs when correctly designed and installed.”

Progress on sustainable claims

In November 2021, Zurich UK announced a ‘prevention rather than cure’ drive to help flood claimants improve their properties to better withstand future damage. This drive includes signposting customers towards specialist advice on flood resilience, available grants and other resources.  Zurich UK also launched a Flood Resilience Toolkit, setting out a process loss adjusters to ensure that resilience is prioritised.

Insurers have shown a willingness to weigh in on issues that affect risk, such as the current construction skills shortage.

As O’Shea says: “It’s no secret that the construction industry is experiencing a skills gap, not least due to the effects of Brexit. It’s important to formulate some form of educational programme within the construction sector. At the time we’re seeing a gap in skills, we’re also seeing a greater emphasis on modern methods of construction. Those often require specialist knowledge but if the skills gap is widening, is this a perfect storm? An educational programme across all trades involved in construction can, of course, only be a positive initiative.”

Lowe adds: “There’s a huge need for education, both with respect to construction methodologies and also cultural values in the construction sector. The Building Safety Bill will establish – on a statutory basis – the requirement to demonstrate competency among operatives. There’s some important work being done by industry bodies like the Construction Industry Training Board and the Get It Right Initiative aimed at plugging the skills gap and disseminating best practice.”

Barnett points out that the government’s target of building at least 300,000 new homes annually is ambitious, and says: “Property can only be built in a safe and sustainable way if we have a workforce with the skill set to make this a reality. We urge the government to plan how it will address the shortage of professionals such as architects, planners and builders, as well as meeting wider-trained and competent labour requirements, in order to fulfil the promises made.”

He favours a comprehensive industry-led skills strategy for the construction sector to ensure expert capacity in the system to deliver well-planned, suitable and safe housing and infrastructure to include degree, conversion and apprenticeship schemes.

Insurers also do not want to see major developers continue to have to much influence, as power in the hands of the few is rarely beneficial. Small and medium-sized developers are now building fewer homes, which means less competition and diversity.

Barnett says: “We urge the government to take steps to help new developers and SMEs navigate their way through the planning system, through a specific fund and named contacts at local planning authorities.”

The journey to greater resilience remains at an early stage, although it arguably has an end in sight in 2039 when Flood Re is closed. By this time, it is envisaged the insurance sector will not require a backstop.

Legislation is only part of the solution. Dave Clare, divisional director and head of surveying services, at adjusters Questgates, says consumers and businesses also need to be encouraged to make their properties resilient through rewards and incentives.

Flood or fire risk

Clare adds: “The Internet of Things has enabled better remote monitoring of flood or fire risk, and perhaps those in property can learn from how telematics have been used in motor or even the life market, where financial reward for better driving or healthy choices is commonplace. Could we see property insurers taking a ‘black-box’ mentality for smart homes, which control fire, flood and water leak management from within – preventing significant loss in the future – as we monitor higher risk drivers?”

When it comes to development, it is a difficult balancing act – the government is pushing ahead while insurers are loathe to see risky building.

When it comes to development, it is a difficult balancing act – the government is pushing ahead while insurers are loathe to see risky building

De Mesquita says: “The most appropriate approach is to avoid the flood risk entirely by reducing construction in flood-prone areas. But building design features can aid the reduction of flood damage risk, such as having the ground floor raised or having a ‘floodable’ usage of the ground floor space. Some argue that planning regulations already encourage this, but in our experience, the current approach to building construction and renovation is failing to adequately protect properties against flooding.

“The alternative approach we advocate is buildings at risk are better adapted using property flood resilience measures. Therefore, if flood waters enter a property, it’s a simple case of wiping down walls and floors with valuables and personal possessions moved upstairs, so reducing damage and cost and allowing the occupants to avoid much disruption and stress.”

Property resilience

Gareth Bowers, head of major loss at adjusters McLarens, has played an active role in this area, including as a member of the property resilience roundtable, and in supporting claimants on the frontline after floods. Bowers supports the Flood Re regulations, but points out that these do not extend to businesses, and should benefit from resilient repairs, and explains: “We need more consistency. You see some wordings that will allow an additional sum insured for resilient repairs, whereas others do not.”

Bowers adds that there have been big strides in recent years. “There’s far more engagement; a code of practice on resilient repairs as well as advances in areas like drying techniques. There’s more knowledge and that’s encouraged in training, such as from Chartered Institution of Water and Environmental Management.”

Flood claims can be exceptionally hard for claimants. For adjusters, there are also challenges. One is a shortage of alternative accommodation – with Airbnb suggested as an option here, something insurer Zurich UK has already explored with a move to give customers access to more than 200,000 plus like-for-like properties listed on the rental firm’s website across the UK.

Bowers says there could be growth in long-term insurance agreements, as if extensive repairs are provided, these could be a viable way forward. He says resilience often has buy-in from claimants.

“The new regulations will help this, as the claimant could find their costs are covered from insurance. But more want to be environmentally friendly, such as through upcycling and having resilient flooring and plaster, for example. As the adjuster, you consider each case on its merits, and be an emotional crutch if needed.”

No matter what progress is made, property claims are here for the duration and there will always be a place for the human touch. 

The modern methods of construction – building upon the pros and cons

As Paul Lowe, partner at law firm Kennedys, explains, modern methods of construction means alternative construction practices such as off-site and modular production, as opposed to bricks and mortar, with units manufactured in a factory and transported to site.

“It can include lower carbon emissions as well as reduction in error and waste. Modular apartments are able to achieve energy performance certificate ratings of A, which at present are met by only 1% of new homes. Twinwall construction is an example of an innovative system that provides for structural strength and speed of installation.”

However, it comes with risk (including transportation and installation) for insurers and construction firms. Lowe adds: “There may be less information regarding how new materials and construction methodologies respond to typical risks such as fire, flood, and escape of water.” This is where the new Building Safety Regulator should play an important role in oversight.

Dave Clare, division director and head of surveying services, at adjusters Questgates, says new materials need careful monitoring. “Memories of Handy Andy back in the 1990s cheerfully knocking up anything asked of him by interior designers out of MDF spring to mind … now we know exposure is harmful.”

There are also concerns about the use of compressed timber in the construction industry, “not as a health issue, but because this type of wood doesn’t play well when mixed with water. It doesn’t look that sustainable if you have to rip out a floor or ceiling and then replace the joists in the case of a flood when traditional timber can withstand so much more,” Care explains.

“The same goes with use of plaster. Gone are the days when there used to be wet plaster with a base coat and skim. Now it’s more a case of dotting and dabbing, which presents issues. We need more scrutiny on how new buildings are constructed and to introduce better mitigating factors and prescriptive, preventative measures.”

Axa believes that a database must be set up as a go-to resource for information and the best practice on modern methods of construction materials and techniques.

Dougie Barnett, director of mid-market and customer risk management for Axa UK,says: “Government, regulators and industry should input into this resource to define what ‘good’ looks like in MMC. This should include information about existing housing developments and other buildings that have been developed using some form of MMC, and provide an early warning system of any safety concerns.”

 

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