Insurance ‘must take a leading role’ clarifying products to support secondary construction material usage

The use of secondary construction materials in the insurance industry should be one of the key levers in the UK’s efforts to transition to net zero carbon emissions.

As defined by recycling, waste and compost retailer Busch Systems, secondary construction materials are those that have been used, recycled and sold for use in manufacturing. They “allow for less reliance on the search for new raw resources for items such as paper, aluminium and plastic”.

To support the establishment of increased usage of secondary construction materials, membership charity the UK Green Building Council (UKGBC) believes the UK should move from a linear to circular economic system.

The charity, which has around 700 member organisations, believes that the latest environmental and circular economy policies and techniques that are improving waste treatment means the UK’s construction industry should now be using secondary materials as an alternative to primary ones.

The UKGBC added that the UK’s insurance industry has a vital role to play in this process.

In a report it published on 31 January 2023 - entitled System enablers for a circular economy – the UKGBC identified specific areas where UK insurance firms can support a circular economy. These include:

• Greater collaboration and early engagement between industry stakeholders.
• Scaling up green finance to stimulate business support for a circular economy.
• Educating practitioners and decision-makers with the necessary knowledge to be able to implement a circular economy more widely across construction.

Perceived risk

Secondary construction materials are advantageous in the sustainable use of resources.

According to information published by the European Union in October 2022, construction materials and products represent about 50% of all raw materials extracted from the earth’s crust. Construction and demolition activities represent 50% of all waste generated.

The UKGBC emphasised that the construction industry should now be using secondary materials as an alternative to primary ones.

It added that the insurance industry can catalyse the uptake of secondary materials by putting in place the processes needed to grant warranty for such materials.

Kai Liebetanz, senior sustainability advisor at the UKGBC, told Insurance Times: “If warranty of a product is not given because of an overly risk averse approach, or because the risk has not been assessed properly, this can hold back much needed progress in the industry.

“In fact, within the built environment, lack of collaboration and knowledge sharing with insurers is often cited as a critical reason why circular economy aspirations are held back from becoming reality.

“The fact a material or product has had a previous life does not always impact its ability to perform its intended function, yet the associated risk of using secondary materials is often perceived [to be] too high.

“There needs to be better communication with insurers and underwriters, together with design teams, engineers, contractors and underwriters to explain the due diligence of the process to re-test, re-fabricate and re-warrant secondary construction materials as this will help reduce risk perception.”

Limited opportunities for insurers?

In principle, the insurance industry accepts the use of secondary construction materials, recognising the role they can play in the transition to a net zero economy – however, adhering to building codes and safety standards will be key to their successful, widespread adoption.

Callum Tanner, senior policy advisor at the ABI, explained: “Tackling climate change is a key priority for insurers. When appropriate and safe to do so, using recycled materials in buildings is one such step that can be taken - although it’s essential the fire risk of any building material is seriously considered before being used.

“Resilience also needs to be at the heart of building works and, with extreme weather events becoming more common, it’s increasingly vital that our homes are built to a standard that can withstand future threats.”

Insurers that Insurance Times spoke to said they are currently only seeing limited usage of secondary construction materials for the type of risks that their risk engineers see.

These insurers added that the use of materials - whether salvaged, recycled or new - must meet relevant construction standards, whether that be regarding combustibility or strength.

They also thought it unlikely that statutory requirements will differ between the use of new or recycled materials. A consequence of this is that the choice of material is equally unlikely to make a difference to claims costs or the size of losses.

Rebecca Rogers, head of property claims at Allianz Insurance, said: “Opportunities to use secondary construction materials are rare. Since there is currently no supply chain for [them], the building project would need to source them from a nearby site undergoing demolition at the same time.

“Even when such a rare opportunity might arise, customers [often] choose new materials over recycled materials. The opportunity from an insurance claim perspective is therefore very limited.”

‘Leading role’ to play

In addition, brokers told Insurance Times that if secondary construction materials were to be used in repairs and rebuilds for property claims, then the client would need to be involved to ensure that the use of secondary construction materials is not to the detriment of the reinstatement.

According to the UKGBC, product liability policies need to cover reused products explicitly and without confusion.

It explained that this can then be used as a powerful tool to level the playing field between reused materials and pre-consumer recycled content that effectively hasn’t been used before, removing a further barrier to the roll out of circular building practices.

Liebetanz said: “The insurance industry must take a leading role in developing easy and clear processes around reused materials and bring a greater variety of insurance products to the market that support our transition [to net zero].

“Insurers must work together with the built environment to remove all doubt over product liability insurance for each category of goods where possible.

“Once product liability is in place, the market and industry will have the confidence needed to allow a circular system function in the built environment.”