Zurich NA construction team reaping rewards of renewables and sustainability focus

Zurich North America is making a renewed push into the renewable energy construction market with the carrier having increased its appetite for the business as part of a wider strategy to support greener technologies and materials.

Since the start of this year, Zurich North America has “effectively reinstituted and reemphasized our focus within the alternative energy space”, Patrick McBride, the carrier’s head of construction property told The Insurer.

“We’re providing capacity support and competitive builders risk offerings within the solar, the wind and battery energy storage space,” he explained.

Zurich North America already played a role in the renewable energy space, but as McBride noted, he and his construction colleagues are increasingly working with the carrier’s energy casualty and property counterparts to support clients.

“We’re working in close collaboration with our colleagues to essentially provide soup to nuts coverage from design all the way through to operational, from a P&C perspective,” McBride said.

As he explained, Zurich North America is positioning itself to support the transition from conventional energy to alternatives, including hydrogen, biomass or biogas technologies.

“It really underscores Zurich’s commitment to sustainability,” Kelly Kinzer, Zurich North America’s head of construction said.

“We’ve already had a lot of traction since launching back into the space at 1 January and we’ve bound a number of different projects worth several millions of dollars’ worth of premium, so it’s been a very strong start, and certainly a warm reception for Zurich getting back into the space,” Kinzer noted.

Further evidence of Zurich North America’s commitment to sustainability was seen in May when the company brought in Alicia Pavelko from WTW as head of US construction innovation and sustainability.

It also bolstered its renewable energy platform with senior underwriting hires Molly Dorsett and Nicholas Haller who joined from Chubb and Haller-Zaremba Insurance Agency respectively.

Mass timber gaining favor

Zurich North America’s focus on renewable energy is just one element of the carrier’s push to support the move towards a more sustainable environment.

In November last year, the company launched two new products aimed at commercial construction projects using mass timber. One is a project-specific coverage while the other takes the form of a master builders risk program, both of which are offering up to $50mn of capacity to qualified customers.

Mass timber is a class of engineered building materials fabricated from layers of wood pressed together, often with a strong adhesive, under great pressure.

The building material is becoming increasingly popular in the construction industry because it offers several advantages over other materials such as concrete and steel, while it also uses a renewable resource and its manufacturing process emits less carbon.

Mass timber is also lighter weight than some traditional building materials, and because it is prefabricated, it has the potential to enhance labor, cost and safety efficiencies on jobsites.

“Zurich is excited about mass timber because, first and foremost, it comes from a sustainable source,” McBride said.

“Mass timber isn’t new. It’s been around in Europe for some time, and we fully expect mass timber usage to be an emerging trend for the coming years in North America,” he added.

As McBride explained, mass timber is a stronger and more versatile material than light-frame wood, while it is also more durable. Because of this, Zurich North America differentiates mass timber from light-frame wood construction in its underwriting unlike many other carriers in the market.

Having differentiated underwriting for mass timber and light-frame wood construction projects also benefits clients.

Several large wood frame fire losses in the past 18 months have seen underwriters push up pricing and tighten terms and conditions for such projects in response.

“Zurich’s stance has been to decouple light wood frame from mass timber. We think that the combustibility qualities in mass timber differ from a traditional light wood frame, and the cross laminated component really allows structures to be built of wood at a much higher height compared to light wood frame,” said McBride.

The creation of the mass timber products was in response to repeated calls from clients that there was a gap in the market for such coverages and capacity, Kinzer said.

“Previously, the majority of the markets here in the US were really viewing mass timber in a very similar fashion to light wood frame, and so the rates, the terms and conditions, tended to mirror one another, if nothing else probably from a lack of understanding of mass timber construction in general,” she suggested.

While mass timber’s growth in the US was largely restricted to the Pacific Northwest initially, Kinzer said its use has been spreading across the country, with Zurich North America binding coverage for projects in South Dakota and Arkansas, among other states.

“It’s no longer kind of this Pacific Northwest anomaly – it’s starting to be integrated throughout the US,” she said.

McBride added: “We’ve had a pretty impressive uptake in terms of opportunities, not just from a submission flow, but actually opportunities that we have bound either on a project builders risk basis, or on the new master builders risk form.

“We’ve been engaged on dozens of opportunities since our launch in November,” he said.

Parametric pick-up

Launch of the mass timber offerings was just one of the innovative products that Zurich North America’s construction team has brought to market recently, with the unit unveiling a series of parametric coverages in early 2021 designed to help clients manage the growing financial risks associated with climate change.

As Kinzer explained, she and her colleagues frequently heard concerns from clients about climate change and weather events, and notably those that are more extreme, increasing in number and the impact that can have on construction projects.

“Oftentimes these extreme weather events – they could be heavy rainfall or winds, or extreme temperatures – don’t actually result in a builder’s risk claim because no physical loss or damage takes place and the policy isn’t triggered, but economic losses are still incurred [through delays or being unable to access the site],” Kinzer said.

“That was the impetus for us to develop a construction-specific weather parametric offering,” she added.

Zurich North America’s parametric construction product currently provides coverage for losses incurred from four perils – rain, wind, and extreme heat and cold. The company intends to add to those in due course.

“We launched the parametric products in January 2021 and we’ve provided quotes or indications on hundreds of projects at this point, and have had great interest both from a general contracting perspective as well as from an owner perspective,” McBride said.

While parametric products are increasing in popularity, both Kinzer and McBride said some clients and brokers still need educating on what the coverages offer and how they work. And while that remains true, Zurich North America has been selling its parametric protections to both owners and contractors in the middle market and larger, highly complex segments.

“It’s been a fairly steep learning curve, but certainly with the number of extreme weather events that we’ve seen in recent years, there’s been a lot of interest in the product offering and the concept in general,” said Kinzer.