Modular Construction Presents Double the Exposure, Double the Risk

While the need and relevancy of modular construction continues to rise, companies should ensure they are well-versed in what risks these projects may present.
By Gary Clevenger
February 5, 2021

It is clear that the COVID-19 pandemic has triggered a short-term and a long-term impact on the construction industry, specifically in the use of modular construction. The spread of the virus has overhauled the health care system, changed the way business is conducted and even altered how students attend universities. As a result, temporary hospitals, isolation facilities, and housing units—to name a few—have been popping up across the United States at an increasing rate. With these applications in mind, it is expected that the modular construction industry could see growth of nearly 6% by 2023. However, the use of modular construction poses a unique insurance situation—one that could potentially double the risk profile of a company.

Modular buildings are versatile and can be designed and built to serve virtually any function. They require the least amount of on-site construction time, as all plumbing, electrical and even design finishes have typically been installed in the offsite facility. Since modular units are easily replicable, the quality of construction often rises. Modular construction has also been attributed to helping close the gap in the labor force, as a controlled work environment and increased efficiencies in the job have attracted and retained skilled workers. Building costs can be reduced and the finished products can get to market much quicker. All of these benefits are a result of the core foundation of modular construction—components that are built in a manufacturing facility, transported and then installed on a construction site. Here is where the challenge lies for insurance.

Not many other industries outside of construction and manufacturing face the unique situation of double exposures and double risk threats on just one single project. Modular construction absorbs the traditional risks found in a manufacturing facility, such as heavy machinery, workplace slips and falls as well as hazardous materials, in addition to the risks found on a construction site, such as building codes and the labor force, all topped with risk from the transportation of materials from one site to the next. If something goes wrong on the project at any point, it could be complicated from an insurance perspective to identify the cause.

Therefore, it is important for leaders to recognize and understand some of the most pressing exposures and considerations found in modular construction.

  1. Building codes: In building codes, there is typically no mention of special treatment, exceptions or exemptions for projects built using modular construction. Therefore, these projects must meet all applicable sections of the building code.
  2. Labor laws: Trade licensing requirements and labor agreements applicable to the project site may or may not be applicable to the off-site location at which the modules are constructed. For example, there can be times that non-unions are used to build the project but unions are used to install the project.
  3. Contract language: Traditional construction contracting is typically not reflective of the unique circumstances found in modular construction, such as the impact of state laws and OSHA.
  4. Quality control: Many protocols are put in place within a manufacturing facility and separately on a construction site to ensure the safety of employees as well as to uphold the quality of the construction materials. It is crucial that the same level of consideration is upheld on both sides of the modular construction process, or else an increase in exposure may be seen.
  5. Supply chain: There are several challenges in relation to supply chain, including availability of warehouses to host the materials and meeting tight deadlines to ensure on-time delivery at the construction site. A recent survey found 22% of contractors expect offsite construction to disrupt the supply chain, leaving the industry to struggle to adapt to modularization.
  6. Transportation: Transporting modularized units presents a new set of risks, as many factors need to be considered, such as where the transport occurs, are there limits to the size of the transport as well as what happens when you cross state boundaries in regards to permits and fees.

While the need and relevancy of modular construction continues to rise, companies should ensure they are well-versed in what risks these projects will present. Preparation is key to managing the unique and sometimes complicated risks on modular construction projects. Insurance companies and brokers can provide the needed education and awareness of the varied exposures during a modular construction project, helping companies arm themselves with the right insurance protection before a project is even launched.

by Gary Clevenger
Gary Clevenger, MS, CSP, RRE, is responsible for leading and advancing strategic initiatives for the segment business. Aligning risk control with enterprise partners to bring industry leading risk assessment and risk control service to segment business. CNA offers it policyholders CNA SORCE® On Demand, which provides instant access to a custom library of risk control sources and industry specific courses. 

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