The specialty construction sector is one constantly reshaped by the whims of external market conditions. Having served the space for well over a decade now, Sam Hiller (pictured), partner at Gallagher Specialty Construction, has seen many of these evolutions first-hand and the changing emphasis being placed on sustainability in construction.
“It’s changed a lot in the last five to seven years,” he said. “We had a soft insurance market before where clients tended to be less passionate about sustainability. Lots of projects were concrete frame and new builds, and they were big and exciting projects, but sustainability didn’t seem as important. Meanwhile, we as insurance brokers and advisors were often not thought of as a crucial part of the project team.
“But the insurance market has hardened significantly, and these climate change and sustainability conversations are growing justifiably louder. Our clients, and their investors and tenants, have an ever-increasing focus on this subject, and specifically on emitting less carbon in the built environment. It’s now something we’re being asked about quite a lot.”
Last September, Hiller and his team hired out the Old Library at Lloyd’s to host a conference on the importance of sustainable development which bucked the trend of a siloed approach to such conversations by bringing together key players from across the entire construction and property ecosystem. The event was a two-way conversation aimed at highlighting why insurers need to understand and get involved with how construction is evolving, but also on educating clients on why the transition will take some time.
He noted that in order to create a more sustainable future, there needs to be a shared vision across the market, and also the willingness for key players to meet in the middle. What has been encouraging to see, he said, is how people are engaging more with conversations about sustainability, in the context of more challenging market conditions – and the evolution of some incredible projects.
Gallagher Specialty Construction has had the opportunity to work on projects including the Dalston Lane development which, at the time of completion, was the world’s largest Cross Laminated Timber (CLT) building. Gallagher also supported the development of the multi-award winning Black and White building in Shoreditch which is currently London’s tallest all-timber office building.
For Gallagher, Hiller said, the focus has been on advocating to clients and prospects on the need for early engagement. Two years before a project starts, clients should be working with their brokers and risk advisors on establishing a thorough risk management profile.
This is essentially a sales pitch as to why insurers should support challenging projects, he said, as it shows that significant time, thought and effort has gone into understanding the risk at hand – and how to mitigate it. The response to the broking giant’s efforts can be broadly split into three categories. One third of the market is on the progressive end of things; they’re willing and keen to learn and understand their risk profile.
“Then there’s the second third for whom this process is highly risk dependent,” he said. “They’re on the fence about doing it more generally. Then you have the other third who just seem to drag their heels and are facing being left behind and losing out as the rest of the market moves on.
“There’s another element to this in that some insurers have struggled with aligning their underwriting appetite with their wider sustainability and environmental targets and statements. So, that’s been a cause of contention on a day-to-day trading level with our clients, to see the bit of disconnect between some insurers’ corporate messaging and then their underwriting business.”
It’s the oldest cliché in the world, he said, but the only solution to bridging the gap between the appetite for large, complex schemes from insurers and clients comes back to early engagement. Clients need to be talking to their brokers as early as possible and bringing them along on every stage of the journey to give themselves the best chance of obtaining the right coverage at the right price.
One of the things Hiller and his team advocate is carrying out value-add risk workshops early in the design phase. That means asking questions not just of the developer clients but also everybody involved in the supply chain, he said, including; structural engineers, fire engineers and contractors..
“We find ourselves hosting these risk workshops to give advice early on about the key things insurers are concerned about,” he said. “Some of the big ones are things like escape of water and avoiding that with risk mitigation but also fire risk management and hot works. Giving advice early so the client and their team can adapt their designs can help make it a more palatable risk to insurers.
“And it avoids the number of times we’ve been involved in schemes where a client doesn’t do that and comes to us too late in the day, and they’ve not factored in these key risk mitigation strategies. The best example is probably on high-rise developments where insurers these days want the client to install automatic shutoff valves in the event of a leak and water flow monitoring systems. These things don’t cost much money in the grand scheme of a £350 million office and they really add value to your insurance programme – and even whether you can get insurance at all.”
Looking to the future, Hiller said he’s “cautiously optimistic” about the direction the market is taking. Clients willing to take advice and guidance and to do the work necessary to make the risk profile of their challenging schemes as attractive as possible are finding that they can get solutions. There are also some pioneers establishing themselves in the market, and while there are pockets of the market that won’t evolve for some time, there are plenty of opportunities for optimism.
“The shift has begun, similarly to how 20 years ago the first Toyota Prius hit the market and introduced the world to the hybrid motor space whether it stores some electricity but is still powered by diesel or petrol,” he said. “It’s an example of a mild hybrid and, with high-rises, we’re kind of at the inflection point now where you’re probably going to start to see more progressive projects coming through.
“And hopefully in the next 10 years, or even sooner, we’ll get to that fully ‘EV’ world where large projects are using massive timber. They’re already happening, albeit not so much in the world of high-rise, but there are some large projects coming through that are really exciting and which we’re delighted to be involved with. So, it’s definitely exciting times.”
