Higher insurance costs are increasingly shaping building design

Architects face a world of increasing risks. Shifting climate, more frequent occurrences of weather disasters, and slow-moving damage to buildings caused by heat stress and extreme temperature swings have forced modern building designers to become aware of the cost of a changing climate.

While developers and architects don’t always directly consider insurance costs upfront, these costs have nevertheless become a driving factor in decision making. According to recent data from the National Multifamily Housing Conference, building insurance rates for multifamily projects rose for 27 straight quarters starting in 2017. Texas, Florida, California, and the northeast—all high-cost markets that provide substantial business to architecture firms—have seen the brunt of almost a decade of rising insurance costs.

All building types face an onslaught of rising rates, lower operating income, and higher costs due to rising insurance premiums: school districts, which often have less-than-flexible budgets, have been facing steep insurance increases, offering one more reason that green, resilient, and easier-to-insure designs provide additional benefits year after year. Coastal areas have seen the brunt of rising insurance costs due to flooding and hurricane risks and have become prohibitive for many developers, leading to some avoiding these areas, and others to embark on building-by-building sustainability investments, which require architects focused on resiliency.

For architects, the idea of designing with resiliency and sustainability in mind might be considered second nature at this point. Perkins&Will Chief Sustainability Officer Jason F. McLennan says the firm already takes substantial precautions during the design phase to account for wind, water, and flood damage potential, and factors these risks heavily into any project where the firm is involved in site selection. 

“I would say the leading edge of the profession is very much attuned to these issues and ... designing buildings that go beyond minimal code compliance to protecting the welfare of our of our clients with how we design,” he says. 

Just getting insured in certain regions and jurisdictions, he added, becomes a much bigger challenge, and can lead to much higher costs. 

“We're seeing more climate-related disruptions,” McLennan says. “So not surprisingly, we're getting a different look by insurance companies at all kinds of redevelopment and new development. Requirements are going to be more and more stringent in order to be insured, let alone raising the rates of insurance.”

Collaborate as early as possible to mitigate risk

Danielle Lombardo, a risk and insurance expert with the consultancy WTW who works with developers, says she believes the industry is at an inflection point, where it’s much more important than ever for stakeholders—architects, developers, general contractors, insurance brokers, and lenders—to all collaborate as early as possible to mitigate risk. She advises real estate developer clients to get an insurance broker involved during the design phase, so she and her team can help architects and the real estate team understand the benefits of how certain tweaks can help lower insurance premiums. 

There are many levers to move, she says, from adding sustainability measures to making different material choices to adjusting building height. The point of these early discussions is to bring an awareness of overall costs into the planning process, and ideally create a building that’s more resilient, sustainable, and easier to insure. 

“From a property insurance perspective, it’s all about building material,” she says. 

In fact, the insurance industry has been aggressively lobbying for stricter building codes in states and cities across the country, in part to help lower premium costs and risks as more and more areas see increasing rates of damaging storms. With Atlantic hurricanes moving more inland, tornado activity shifting east, and hail and convective storms becoming more violent in the central part of the country, risks are spreading in multiple directions. 

The potential of modular construction

Insurance expert Alexandra Glickman, head of global real estate at insurance and risk management firm Gallagher, believes there’s about to be a massive shift towards modular construction as a means to mitigate risk with prefabricated construction utilizing more fire-resistant materials. 

There have been several examples of larger construction projects or developers looking to modular as a cost saving measure, due to its more rapid deployment, and discovering it also results in better insurance prices for finished buildings. Apartment giant Greystar recently debuted its modular line of projects in a Pittsburgh suburb this past December, creating steel-framed mid-rises that aren’t just faster to construct, but help to lower the company’s insurance bills for these projects. Onx Homes, a prefab builder working on single-family homes in California and Texas that uses concrete walls and just launched a new factory last summer, also finds this method cuts insurance costs in half. 

Along with using more sustainable material, storm proof items like windows, and better siting, a key factor in building better is starting with better intelligence. Just as insurance firms utilize their own modeling to determine risk, architects need to synthesize energy modeling, climate scenarios, rainfall patterns and design with those factors in mind.

 For McLennan, that means designing for a particular climate, namely the climate the building will be operating in 10 or 20 years into the future. In many cases, architects and engineers work with what’s called typical meteorological year—or TMY— figures when figuring out environmental stressors, information from the U.S. Department of Energy, which can utilize 20-year-old data. Currently, there is movement among some architects, including a coalition with the University of Minnesota, to update this information to provide the profession with a better guide to buildings for the risks coming in the future.

“We’re always looking into the future when a building is being built,” McLennan said. “How do you look forward through time, and design appropriately?”

Patrick Sisson is a freelance writer covering architecture and design. He lives in Los Angeles.