Philip Callow is the founder of Mass Timber Risk Consulting Ltd (MTRC), a company to looking to accelerate the use of mass timber in the built environment.
Here is his thinking as to why now is the time for timber.
You founded your company MTRC ‘as a direct response to the frustrations our clients were experiencing around the insurability and lack of knowledge regards to the use of mass timber in our built environment.’ Can you outline the frustrations as a construction insurance broker and underwriter?
The main one is, as a as a broker, you turn to insurers to find the answers. Those answers can be what do you need to know, what you want to know, what should you know and what what availability of cover is out there? I think that one of the problems that I saw was that no one had an answer to that and, for the most part, if there was an answer, it was always going to be negative. So, because of those two years of being an underwriter, specifically looking about the insurability of mass timber buildings, I realised that there was a better way. That way was just stripping everything back down to the bare minimum and saying OK – who has a role to play? What is that role? What information can they bring to the table and putting that together in a way that leads to an equitable outcome for all parties.
Who are you trying to work with to achieve this?
Predominantly my work is with the developers and to a lesser extent with the insurers and brokers. Insurance brokers and underwriters need to know the details of the project, so that they can price it so that the broker can argue on the insurance on their client’s behalf, for the best possible deal, but ultimately to come to a fair, equitable landing on what that policy should be. You can’t do that unless you have the information. What we have noticed, certainly as an underwriter researching this, was that the information you need to price that risk is not forthcoming if you go about things in a traditional way. The normal way that you would build a concrete and steel building doesn’t work for mass timber. The assurances, the certainties, or perhaps the questions that need answering for an underwriter to price the risk correctly and to give a level of cover that is relevant to that project – that information needs to happen much sooner. There is a theme that will be coming out about early engagement and I say it is about early engagement and the quality of that engagement. That part is information and part of it is how you present it. Put simply, that refers to breaking down of how we do things. It is how we used to do things when I first started my career. We had a hard market and it would take many months, including international travel in some instances, to speak to underwriters around the globe and get them on board with a major infrastructure project. Like, for example, Crossrail. They are big, the values are huge, the engineering is a challenge, but there’s no difference for mass timber building, the engineering is a challenge. The safety of that project is a challenge which is why you need to break it back down, get the information presented at the right time to the underwriters to get an equitable outcome.
Which stakeholder community, in your opinion, is the biggest barrier to the adoption of mass timber and how do you manage this?
Without a shadow of doubt, it is the government – we are trying to manage that. There is some excellent lobbying work I started with The Alliance for Sustainable Building Products (ASBP) and is now continuing with Built by Nature. I know that an excellent group of stakeholders across insurance, across architecture, across engineerin, fire risk engineering is working towards lobbying the government to press for support. I think it would be unfair to say that the government is not willing, I think they are willing. We saw that from the outcome of COP26 and we’ve seen that from the strategy going forward. But I think they could do a lot more. I think that that is the biggest barrier.
How do the insurance brokers that you work with view the use of mass timber?
I think they all want it to come, like most responsible members of society. I think the better ones look at it as a challenge, just like I mentioned how Crossrail would have been a major challenge from an insurance broking perspective. Any broker that enjoys what they do loves the challenge of taking something, which on the face of it looks difficult – close to impossible – and using the information available and helping the clients and the stakeholders in that project delivery team present that information in the right way. It is something you must create. That information that they haven’t been asked before and they need to provide it. I think they really do view that as a great challenge. However, I think they are rightly, incredibly frustrated. The response to UK insurers is as negative as it is. We work in a global insurance market here in London and, unfortunately and fortunately, what happens around the world is felt in London and therefore the UK insurance market. I know brokers that are being approached by clients who are multinational who are finding no problems, or limited problems, in securing extra insurance in North America, or Europe with ‘insurer X’, but when the broker approaches ‘insurer X’ in London for a UK project it’s an immediate ‘No’. I think everyone can see a frustration with that, but if you’re in the market, if you are practising broker, it is incredibly frustrating because there is no message to your client that will help saying that ‘insurer X’ won’t do it, but your client is saying ‘well that’s rubbish they’re doing it for me in North America’. That is madness and I think there is something that the insurance community, particularly the carriers really need to look at, because it is unfair that the elements, the physics, the chemistry around the topic of mass timber is the same in North America and Europe, as it is in the UK. That is something that I think is up there with government strategy around this is the second largest barrier to this.
What do insurers need to know to help them feel secure in insuring structural timber construction projects?
Data is key here and it almost sounds obvious, but insurance is based on knowing how something performs. With mass timber we simply don’t have the volume, whether it be in North America or Europe, or anywhere else, that gives insurers the comfort to not have to delve much deeper into the risk dynamics and the parameters of a particular project. That makes it very hard, because fundamentally that lack of data means a lack of projects which means it’s not paying your bills, it’s not meeting your targets, it’s not going to change your business in any given year. So, then you must put a lot more effort into looking at that risk and underwriting that risk, when you’re struggling to make a profit doing the traditional type builds and across both property and construction. So, it is a very challenging landscape for an insurer just doing the day job. So, inputting something that has no data that is obviously a volatile material, in so far as we know timber burns, producing a great strain on underwriters to be able to look at that. In their defence, they do need that data and it isn’t there. Testing is one area that people like to look at. There is a lot of work going on around that, the Structural Timber Association are going to be the conduit for the results and open source format, but one can test for a particular outcome and I think that that is where there is a little bit of a chicken and egg – we need more of these things being built, we need to prove that certain typology, or methodology, or system when employed, is safe. But that takes time. Perhaps we don’t have that time now, not if we’re going to meet our net zero aims.
What should the construction industry be doing in relation to these insurers?
Everywhere you go, when you start talking to the people who design and build these projects, you can tell there is brilliance and excellence. No one sets off in the morning to go. “I’m going to mess up today, I’m not going to do my job to the best of its ability.” When you start scratching beneath the surface, the wealth of knowledge and expertise from people who are prepared to learn, who want to learn, which I would like to think is the vast majority, the engineering and architectural community; what they’re learning and what they know is fantastic. What they are not doing is sharing that knowledge. Not from a “I don’t want to share” perspective, but with insurers and with their brokers. Every time I’ve asked the question as to how do you do this, they’ve got the answer and every time I’ve said, “why aren’t you telling?” – “Well, no one’s asked!” I accept that it is up to an insurer or broker to ask, but perhaps that’s where you need to guide them, you know more than anyone. Your experience on how to rectify issues, your experience on how to control moisture, your experience on how to rectify damage, this is all golden information that needs to be shared with insurers. Every time we have asked, when it’s gone wrong, give us examples of how it has been fixed, the walls come up. I totally get confidentiality, but we have got to be all in this together. Every constituent part needs to play their bit to move this forward. I think the construction industry needs to get better at telling us how good they are. We are very quick to judge and say how bad they are, but there are all sorts of things that they are doing that can demonstrate their quality. I think that it is important, but patience is required, which has not been something that they have needed in the past when it comes to purchasing insurance. That goes back to the idea of early engagement. Just selling their story and being prepared to be open and being able to say, “we don’t know that and the fact that we know we don’t know means we’re going to find out.” That’s super reassuring from an underwriter’s perspective because that gives you comfort that you are working with people who are going to solve a problem and solve in a logical and right way.
You make it sound so easy…
It is very easy. I think that is why this is really got under my skin and several other people’s skins, is because it is easy, but we’ve all got to do something a little bit different and that is the difficult part. It is like getting up early to go to the gym, when you know you are overweight – you know what to do, you are just maybe not going to go and do it! Until you get used to going and doing it, which is hard at the beginning, then it becomes second nature and then it becomes easier. Then you can maintain that food throughout the life of whatever you’re doing. That is why I think several of us, in this area, are so frustrated because we can see that just little tweaks to how you go about doing things and everyone will go on that same journey with you. There will be hiccups, there will be losses, we know that. The insurance market has no problem with paying losses, but they have massive problems with paying losses when you have not done your due diligence, when an underwriter has not done what he could have been reasonably expected to have done to be prudent. That is where things need to happen differently and that is where developers, architects, engineers need to really start opening up and say that we will take you on that journey, because we will learn as well.
Does the UK’s attitude to mass timber differ from that of the rest of the world? If so, how and why?
Yes, I think it does. I think that Grenfell really changed the UK’s perception. It is such a shame because what was fraudulent workmanship that led to what should have been a robust engineered solution, if it had been erected correctly, to prevent fire spread. I think that sadly and ironically, given it was man-made materials that led to the fire spreading, it massively pushed back and for the right reasons, that we must ensure these buildings are safe. Any building is safe, but surely if we can ensure quality of workmanship, we can avoid these issues. If we can ensure testing and performance is adequately measured and that when it comes to mass timber, we can look to other other geographies for that. It is a real shame that we are in this situation, particularly given our need to reduce our CO2 emissions, I think that is the biggest issue we have here. We need to look at the supply chain as well. We don’t have a robust timber supply chain in the UK to match our mass timber ambitions. We look to Europe and Scandinavia for that. They have plenty and we have supply chain issues in general now, but I am sure that we all know they will pass. That doesn’t necessarily help, give that we haven’t got that home grown nature. I should caveat that in the US, they have an unbelievably well-funded timber lobby group, that they are used to building out of, what we would call, frame in the insurance world, which is really four-by-two stick built. They are also used to them burning down, a lot, certainly during construction, which doesn’t help, by the way, that there are significant losses every six to 12 months in the US market, but they have volume and data. There is enough premium. The market knows that these things happen, so again, we have the Grenfell issue, which is entirely right to due process and understanding that would prevent it from happening. We have a supply issue. Whereas, conversely, go to Scotland and Wales there’s a lot of timber being used, a lot more than I think a lot of people realise. Then we have the wider money that somewhere like the US or Scandinavia will use, whether it be government incentives, or whether it be just the commercial sector.
In your time in the industry has the market improved in the adoption of mass timber?
Yes, in the UK absolutely. When I started the underwriting journey, a couple of years ago, on mass timber research we found that from a risk perspective there were some excellent work already done. The prime one is the 16-steps to fire safety and that’s a direct result of events and learnings. It is a great example of how we learn from our mistakes. That’s meant that, from a construction perspective, it was a long journey for us to launch the UK’s first mass timber construction insurance facility. Sadly, that no longer exists because there was no volume, we had no-one asking us for quotes, apart from a handful, so how much interest is out there? One of the issues was that long standing relationships and markets relationships are unequal. Brokers would go and do certain things, but they would get insurance on construction. I would say to anyone now, you can get a construction insurance policy. Not ‘no problem’, you need to do things in a slightly different way and you need to be more open with information, but it is absolutely available and I think two to three years ago it really wasn’t. The remaining issue is with property insurance and I think we have not seen a big change. That, I think, is the most frustrating because we need to temper that frustration and a lot of developers and owners will say well ‘OK, but I can get an excellent construction policy now but in three to four year’s time what will my property insurance policy be now?’ Quite frankly they will not get an answer and any answer will be negative. Now, we need to take a step back there, if you’re a developer and say, well I can’t get a price for my car insurance or my household insurance for three years and about why are you any different? No underwriter will give you that price because they’re not allowed to because the market changes for good and for bad in those intervening years and therefore the price will change. So, no-one is going to commit to that, so we must start looking at what is the commercial driver? We all have a part to play here and maybe the developers, the owners, have a part to play…what’s your worst case scenario? Can we afford that? Can a potential buyer of this property afford that? If the answer is yes, well let’s crack on because then it comes back to data and then it comes back to experience and then it comes back to, we’ve answered those questions, we’ve got more of these buildings and the price will come down. That is inevitable. We are further forward, but I think certainly, from an insurance on the property space, we need to do a lot more work. We need insurers to be a lot braver with qualified data – they can do that and we need developers and owners to be braver; to perhaps not expect insurers to just take their balance sheet issues, to look at more inventive, more effective and inventive ways of managing those balance sheet issues, so that they’re not just all risk transferred to insurers who will not take on what you yourself would not take on. Strip those away and then you will find there is an extra relationship that you can build… but I don’t think we are there yet. I have a feeling that the tea leaves are indicating that we’re at the cusp of that and I think more than ever the conversation is now being had. We have some thought leadership events coming up being hosted in the Lloyds building which is great! Not just a room. They are providing more than that, they’re now really looking at this to be something that they need to get more involved in, as a thought leader. It doesn’t mean that they will push insurers to do something. That is not how they operate. That is not how the market operates, but it is the analogy of leading a horse to water. They are just building the trough and that is what we all need to do. Much more of that is happening now.
How confident are you that we will see the increased use of mass timber in the UK?
I am confident. I think the insurance market will always adapt and change. If you are of the belief that itis the insurance market that is the problem, then be confident that will change. My view is that it is government and the developers, the owners that need to take more responsibility. We’ve mentioned that the government’s policy is maybe not fast, but it is certainly changing towards the use of mass timber and we have mentioned Grenfell and the effect of that. With CO2 emissions, net zero, COP26 having been in this country, I think we’re going in the right direction. Finally, the developers – they are seeing that they have got more of a role to play here. Not just in saying, “you’ve got four weeks to get me an insurance policy please”. That doesn’t work anymore and taking people on that journey. They are now understanding that. They are also putting their money where their mouth is with regards to exploring alternative risk transfer mechanisms. That is really encouraging because the people who wanted to buy the insurance policies are exploring ways of being brave enough to help with that insurance themselves, which really exposes their balance sheets. There are some great little bodies of work going on, there is some wonderful coordination being done by a handful of organisations with regards to thought leadership in this space and obviously the Built by Nature accelerator fund which is relatively new and is doing great work in advancing the use of timber in the built environment. I am hopeful just like with all those little factors and little aspects, all doing their part that everyone else is starting to understand that they have a part to play in this as well, whether it be developers, structural engineers, fire risk engineers, architects, contractors, specialist and non-specialist contractors and then ultimately the insurers and the insurance brokers and advancing all of our knowledge. I am very confident that we will see widespread adoption of this, certainly in the next decade. I will put my hand up and say I think by 2030 that we will have very few of the problems that we have today. We have all learnt about CO2 and the effects on the environment, whether you are a believer in that or not, let’s just think about using sustainable products in our built environment. It makes more sense to use a tree that we can grow than to use resources out of the ground that we can’t replace. That seems good business sense to me. Even if you’re the most ardent climate change sceptic, it is good business to use something and sell it for a profit that you can grow back. That will happen. If we come back to data being a major issue, by 2030 will have more data, simple. By that stage, with ESG, when it comes to the corporate sense, from both insurers and investors and a need to be much more engaged and to do actionable, auditable things around ESG and EU taxonomy, which we are fully a part of within the UK, there is a lot coming, which means that everyone should be jumping on this bandwagon and everyone should be doing their part to learn, to understand what we’re talking about here; to understand the risk, understand how to mitigate it and be able to provide an equitable solution… but everyone has a part to play and that’s that goes back full circle to why I am doing this.
