Wooden buildings have been around for a long time. In fact, the oldest building still in active use is a respectable 1,600 years old. However, the data available on wooden buildings and the damage they have sustained is still not statistically significant. Despite wood’s popularity and long service life as a building material, the shortage of data forces insurers to play it safe, making wooden buildings notoriously challenging to insure.

Author: Sauli Ylinen, senior advisor, Federation of the Finnish Woodworking Industries

This became a hot topic in February 2024 when Allianz, a large international reinsurance company, published its risk assessment for wood construction. The assessment is global, meaning that it is not restricted to Finland or even Europe alone. Allianz placed wooden buildings in the second highest risk category on a scale from one to four. It stated that although wooden construction is needed to reduce carbon emissions and can also lower costs and shorten construction times, it involves different risks than traditional construction.

The report highlights six key risk categories of wood construction that require unconventional risk management: fires, natural disasters, water damage, damage in the value chain (for example in manufacturing), repair costs, and insect damage. Not all risks apply to Finland, of course, with termites and tornadoes not being particularly relevant here, for example. However, the report points out new risk categories introduced by industrial manufacturing that, when building in-situ, are non-existent or negligible. The report concentrates on these new risks, taking no stand on their relative proportions or the combined effect of different risks. On the positive side, wood and pre-fabrication reduce or even eliminate certain risks on construction sites and in buildings. For this reason, any assessment needs to weigh every risk component to determine a project’s true risk level.

The report highlights the risks of industrial production in particular. For example, if defects in a design or product are not detected in time, they can be replicated many times over. Business continuity is another special risk category, with potentially higher repair costs being the third. All three suffer from a shortage of research data. The report emphasises the need for further research to accurately price these risks across the entire lifecycle.

In early 2024, Puutuoteteollisuus ry interviewed key Finnish providers of real estate insurance to uncover their views on insuring wooden buildings. Perhaps the most common comment was that the number of insured wooden buildings was still too small to draw any real conclusions. In other words, we still need more research data and damage history data in Finland. All respondents deemed pricing a trade secret and declined comment.

However, if we read between the lines, we can give our industry a few pointers: Leak damage is the largest factor in real-estate insurance prices. Insurers argued that leak damage in wooden buildings can be more expensive to repair because a larger part of the structures will need replacing after drying. When it came to fire damage, fire categories had the most importance. A P3 class building was always the most expensive to insure, regardless of construction material. In terms of insuring construction work or industrial activities, insurers saw no significant new risks or other special features related to wood construction.

In risk management, they emphasised the advance mitigation of risks. Leakage monitors and similar active measures could lower insurance premiums, but the technology would need to be maintained properly and remain functional throughout its entire lifecycle. Insurance companies propose using leakage monitors already in the construction phase. All interviewees emphasised the importance of passive safeguards in long-term risk management, with the installation of two floor drains in a wet room cited as a typical example of good practice. 

There is a need for research into the repairs and life cycles of wooden buildings. Insurance companies are willing to lower their prices to match the reduced risks, but they insist on proof in the form of research data. The industry needs to develop solutions that limit damage and are easy to repair and maintain during their lifecycle. The general desire to extend lifecycles and enable a circular economy are positive drivers for construction projects. Needing to design for repairability, portability, recyclability, reusability, or flexibility forces us to tackle lifecycle risks proactively from the very beginning of projects and their plans.

Link to the Allianz assessment:
https://commercial.allianz.com/news-and-insights/reports/emerging-risk-mass-timber.html