Abstract
Insurance is a growing economic activity within the construction sector. Homes and buildings are perhaps the most important investment an individual makes in his/her lifetime. Nevertheless, the market for insurance coverage policies applied to the building envelope is in an embryonic stage, mainly due to the lack of knowledge in terms of risk and costs associated to the failure of these elements. This study provides an innovative and methodological approach to the development of an insurance product that targets the obsolescence of building components. In defining a structured approach to the design of insurance policies for buildings, the use of the service life prediction models proposed in this study allows establishing different types of insurance policies with different risk premiums and evaluating different losses and risks accepted by the owners, thus promoting the increase of the patrimonial value of the asset and reducing the risk of premature failure and the uncertainty of the costs of maintenance during its life cycle.
Highlights
The use of insurance to manage construction risks has been a common practice of the construction sector to mitigate the risk of the premature damage of building components from exposure to climate loads [1,2]
In very simplistic terms, existing insurance policies for buildings can be organized in two broad types: those that are designed for home owners and investors and are used to ensure protection against extreme events and those intended for building owners, providing coverage against construction defects and anomalies and usually working as an extension of the typical construction guarantee, which is usually five years after construction but may vary from country to country
The development of insurance policies for building components offers the construction sector and home owners and investors the potential to pass on to third parties the risk associated with the performance of specific building components. This represents a more detailed and incremental layer than that presently available to the insurance market, which typically considers the building as an entire insurance unit. Such a type of insurance products has some limitations: (i) it needs a significant amount of data to be able to calculate in detail the degradation curves of each component; (ii) given the specificities of each country and the respective construction practices, these curves are required to be developed for each specific geographic location; (iii) it involves performance inspections, which can increase transaction costs when establishing the insurance coverage to a level that can jeopardize the economic viability of the product
Summary
The use of insurance to manage construction risks has been a common practice of the construction sector to mitigate the risk of the premature damage of building components from exposure to climate loads [1,2]. Owners and investors outsource the responsibility for the daily maintenance of buildings to third parties (i.e., companies specialized in building’s maintenance, usually spin-offs of traditional construction companies). These maintenance contracts can include some corrective maintenance, their focus is preventive maintenance actions [8]. The choice of this model for the maintenance allows owners to pass on this responsibility to specialized third parties, which may decrease the overall life cycle costs, but frequently limit the level of risk assumed.
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