The growth of the mass timber construction industry in Canada is being slowed by persistent high insurance rates on wood-frame buildings that are six to 10 times higher than those for conventional steel and concrete structures.

That is the conclusion of the Climate Smart Buildings Alliance (CSBA), which is actively working to convince insurers to revise their pricing policies toward mass timber buildings that carry a low carbon footprint.

"We are looking at the challenges facing the mass timber industry and addressing the concerns cited by insurers as part of the process to help accelerate and lead the way to net-zero across the building sector," CSBA director David Messer said in an interview with Sustainable Biz Canada.

"Most insurers I've spoken to understand that mass timber construction is an opportunity to reduce the carbon content of buildings and are supportive of this goal."

Canadian underwriters set higher risk premiums for mass timber construction owing to the lack of quantifiable data on risk factors such as fire, water exposure damage, repair costs and limited track records of mass timber property developers and builders. 

"Mass timber buildings are new on the construction landscape and the lack of data complicates the task of insurance companies in assessing actuarial risk and deciding how risky mass timber buildings are to insure." 

As part of its campaign to create a level playing field in the construction sector, in May the CSBA teamed up with the Canadian Wood Council and assembled 40 leading insurance and building industry executives to launch the Mass Timber Insurance Action Plan to provide a comprehensive framework for risk data collection, assessment and evaluation.

The Mass Timber Insurance Action Plan

The plan calls for four principal objectives to be achieved by the end of 2025: 

1. Increase the volume of risk/loss data via a mass timber insurance data trust.
2. Solve the knowledge gap by creating a mass timber research database and establishing go-forward research priorities.
3. Explore solutions to limited capacity of mass timber insurance and reinsurance.
4. Develop a method for insurers to verify contractors’ specialized experience with mass timber.

"The insurers are facing a challenge in the form of mass timber and they need to get a better grasp of this new product and how these new buildings perform over time. At the same time our industry needs to figure out what we can do at a systems level to accelerate that knowledge transfer to insurers, so they can more quickly update their risk evaluations," Messer explained.

In recent years, mass timber has gained considerable traction as a sustainable construction material. It takes the form of cross-laminated timber and glued laminated timber framing as a substitute for structural steel and reinforced concrete in traditional tall buildings. 

Mass timber also carries with it an intrinsically lower environmental impact owing to the renewability of forests, the ability of wood to sequester carbon and far lower levels of embodied carbon. 

This makes the challenge facing Messer and the CSBA all the more urgent in enabling the mass timber construction sector to reach its full potential.

"There are a whole bunch of information silos out there and this is why we're developing a mass timber insurance data trust wherein all insurers can share risk loss data on mass timber assets in a single place," Messer said.

"We now have a significant group of insurers working with us on this project to figure out how we can set up a system so that everybody has a much greater access to volume of loss claims and can operate more intelligently at the system level than they are now operating as individual insurers."

Pushing for change

Founded jointly in 2023 by EllisDon, a Mississauga-based construction services company, RBC Royal Bank and Mattamy Homes, the CSBA is committed to accelerating the pathway to net-zero in the built environment. 

The Alliance, which has since added AtkinsRéalis, Wesgroup, CIBC, and Dialog to its ranks, recognizes that mass timber buildings are a vital part of the decarbonization solution within the construction sector. Mass timber buildings generate 30 per cent less carbon emissions than comparable concrete structures and 50 per cent less than steel buildings.

Another advantage of mass timber materials is that they can be prefabricated off-site, thereby lowering carbon emissions associated with cement mixing.

"We need to redesign the system so it actively supports innovation and the use of climate mitigating materials and technologies integral to creating low carbon buildings. Sustainability is going to be highly disruptive to the building sector," Messer said. 

Reinsurers vs. insurers

In discussions with leading Canadian underwriters, CSBA director Messer has detected an inherent structural difficulty preventing insurers from bringing mass timber premiums in line with those for steel and concrete buildings.

The Canadian reinsurance market - dominated by Fairfax Financial, Hannover Re, Munich Re, and Arch Reinsurance which provide insurance for insurers - remains skeptical of the mass timber sector, again owing to the lack of quantifiable data.

As a result, insurers have limited funds available for mass timber projects. This obliges developers to seek out Canadian underwriters to form consortiums to cover larger projects which further inflates costs and keeps premiums high.

The CSBA is engaged with 24 insurers in North America - including RBC Insurance, Liberty Mutual, and AXA XL- to explore ways to normalize insurance rates for mass timber buildings. 

"We need to work together in good faith to solve the challenges and create a system where insurers are confident they're making smart bets and operating from an intelligent data-driven position. Our Action Plan is a step forward in this process. We're also finding ways to support new approaches, new standards, new technologies wherever we can."

EDITOR'S NOTE: Sustainable Biz Canada reached out to several insurance companies to comment for this story, but did not receive a response by publish time.