With insurance carriers tightening their underwriting standards, increasing premiums, and reducing coverage options, the hard market is imposing challenges on real estate owners and developers alike. Great pricing for new construction can no longer be expected, with many carriers lowering their per building limit, leaving no other option but the pricier rates found in the surplus market.
A common issue we’re finding with our Northeast clients pertains to the “stick frame over podium” projects that have becoming more popular in recent years. Using a hybrid method of cast concrete or a fireproofed steel base for one or two stories, topped with a light and stick frame often built with engineered wood, these projects tend to be quick to erect.
Despite the appeal of a short project timeline and potential for up-front cost savings, this method of mixed-use construction presents a number of considerations for carriers that can result in much higher insurance rates. Standard and admitted carriers have limitations on how much capacity they can offer per building. When the total insurable value of one building surpasses $15M, the appetite diminishes.
1. INCREASED FIRE RISK
Stick frame construction is more susceptible to fire hazards due to the use of combustible materials, which increase the risk of fire spreading quickly. Specific types of preventative methods like sprinkler systems and firewall implementation factor heavily into a carrier’s consideration of fire risk.
2. STRUCTURAL COMPLEXITY
The multiple structural systems created in a stick frame over podium project introduces added complexities, with a primary challenge being the potential for differential settlement. With the stick frame and podium sections having different structural systems, they may settle at different rates which can cause it to become uneven, leading to cracks in the building, compromised structural integrity, and potential damage.
3. SOUND TRANSMISSION AND LIABILITY CONCERNS
Stick frame construction is generally less effective at soundproofing compared to other construction methods. In mixed-use developments, where residential units are located above commercial spaces, the potential for sound transmission between the different areas can lead to noise complaints and potential liability issues.
4. WATER DAMAGE RISKS
The combination of stick frame and podium construction can present challenges in managing moisture and preventing water damage. Proper sealing and waterproofing between the two systems are crucial to avoid issues such as leaks, rot, and mold.
5. GREATER VULNERABILITY TO SEVERE WEATHER
In areas prone to severe weather conditions like hurricanes, this type of construction can be considered riskier with high winds able to cause significant damage to stick frame structures, increasing the likelihood of claims.
Insurance rates and underwriting decisions obviously vary based on specific project details, location, and market conditions, but our real estate team is equipped to help developers navigate challenges like these and make recommendations at the start of a project for insurance considerations post-completion or creatively design coverage for those projects exiting Builder’s Risk.
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Vice President, Partner | Business Insurance
Matt is Vice President, Partner at RogersGray Insurance, specializing in real estate and property management. Matt works to help his clients design a risk management strategy that aligns with their own unique situations. He works with emerging and middle-market companies that have sophisticated liability insurance needs. You can connect with him on LinkedIn or by email