Managing modular construction risks
- Modular home construction is gaining momentum in Australia, with the market expected to see more growth than other regions between 2020 to 20291
- Modular projects can involve a number of risks, including off-site fabrication standards, potential for serial losses, and transport risks
- Effective strategies are needed to manage and mitigate risks, such as quality control and assurance measures as well as detailed transportation planning
Modular construction is becoming increasingly popular in the global building industry, with many countries embracing this innovative approach to tackle construction and housing challenges.
For many industry operators, this trend has come at the right time. According to QBE’s Australian Construction Sector Outlook report,2 the NSW Government has begun exploring ways to deliver on infrastructure and housing programs in light of cost escalations, supply chain challenges, construction sector insolvencies and ongoing labour shortages that could slow down the addition of new projects to the national pipeline.3
As the report suggests, technological advancements like modular construction have the potential to streamline the creation of everything from commercial spaces to public buildings and residential homes. The Asia-Pacific region in particular is embracing modular construction, with the market expected to grow at a compound annual growth rate (CAGR) of 7.3% between 2020-20294 – the highest of any region in that period.
While the trend is gathering pace in Australia due to its cost-effectiveness and the demand for sustainable building practices, there are still significant challenges. Despite the benefits, modular construction involves risks that builders and their brokers need to be aware of.
What is modular construction?
Unlike traditional methods where each part of a building is constructed on-site, modular buildings consist of prefabricated sections or modules designed and created off-site in a factory-controlled environment. These are then shipped to the site for assembly to form the complete building.
Modular construction is versatile and can be used for a variety of projects, including residential homes and offices, hotels, schools, and healthcare facilities. It can also be used for both permanent structures and temporary installations, offering flexibility to meet diverse needs and the possibility of repurposing.
Reasons for the increase in modular construction
A NSW Government Taskforce was recently established to explore the use of modular builds for social housing,5 with a range of modular construction initiatives being driven across Australia.6 The rise in interest has been sparked by several factors, including:
Addressing housing shortages and affordable housing needs
Australia is facing housing shortage issues and modular construction offers a more efficient way to build homes, which has the potential to alleviate some of the pressures on the housing market.7
Affordability is also a concern for many Australians. Modular construction can potentially reduce costs by streamlining the building process, making it an attractive option for affordable housing projects.8
Production efficiency
Factory-controlled environments can potentially allow for greater precision and quality control. By standardising the production process and introducing tailored technologies, developers can cut down on construction time and associated costs, resulting in faster project completion.9
Sustainable building practices
Around 40% of solid waste in Australia comes from construction and demolition.10 Modular construction is a way to improve the sustainability of the industry. This is because building in a factory setting can allow reduction of waste in the process.11
Another key advantage is the flexibility and adaptability of modular buildings. They can be more easily disassembled and repurposed, minimising the need for additional raw materials and energy use.12
Faster project delivery
Traditional construction projects can be delayed due to adverse weather conditions and other on-site challenges. Modular construction can mitigate these risks by completing most of the work indoors. As a result, the pipeline from design to delivery can be faster.13
Modular buildings can be constructed in parallel with site and foundation work, meaning that projects may be completed faster than with traditional construction methods.
Managing the risks of modular construction for builders
As modular projects are mostly built off-site, builders often work at arm’s length until it comes time for installation. QBE’s Matthew Boon, Head of Underwriting, Heavy Industries, and Craig Rogers, Manager, Risk Engineering, note that construction and building businesses should consider taking a holistic view, with involvement through all stages of the build.
“There’s potential risk at every level. It’s important for builders to have oversight of the entire building process, ensuring that everything – from the initial requirements to the final delivery and compliance – is well managed,” says Rogers.
Transportation is another important consideration. “While some builders might look to contract out the responsibility for transport between the manufacturing company and the site, it’s important to have oversight to ensure the components arrive in good condition. Any issues during transport can become the builder’s problem once the modules have arrived and defects or damage need to be dealt with,” says Boon.
Modular construction: risk management tips
Building contractors should consider conducting a thorough review with their insurance broker to understand the additional risks associated with modular construction and identify any areas where exposure could be reduced. Things to consider include:
- Product quality and off-site fabrication standards: Ensure rigorous quality control measures are in place for off-site manufacturing to maintain high standards and minimise defects.
- Potential for serial losses: Be aware of the risk of producing faulty products in large quantities and implement robust quality assurance processes to mitigate this. It’s also important to consider that some components may no longer be accessible after assembly, which may have impacts if repairs are required.
- Transport and transit risks: Develop a detailed plan for safely transporting modules to the site, including addressing potential issues that may arise during transit.
- Application of Australian design codes and standards: While these are still evolving, it’s crucial to focus on design, quality control, and third-party oversight to ensure compliance as well as clear contractual requirements that outline ownership and responsibility at each stage.
- Overall liability status: Partner with a trusted broker to understand your role in the project and ensure that you are comprehensively covered for product liability, transport, and installation.
Download QBE’s Australian Construction Sector Outlook report
For more in-depth insights on modular construction and the broader construction sector, read our article on QBE’s Australian Construction Sector Outlook report.
1 Modular Construction Market, Markets and Markets, Global Forecast to 2029, April 2024
2 Australian Construction Sector Outlook, QBE Insurance, 2024
3 Exploring Modular Housing to Deliver More Social Homes Sooner, NSW Government Media Release, November 2023
4 Modular Construction Market, Markets and Markets, Global Forecast to 2029, April 2024
5 Exploring Modular Housing to Deliver More Social Homes Sooner, NSW Government Media Release, November 2023
6 Can Modular Homes Solve the Housing Crisis?, Australian Broker, December 2023
7 Exploring Modular Housing to Deliver More Social Homes Sooner, NSW Government Media Release, November 2023
8 Modular Construction Market, Markets and Markets, Global Forecast to 2029, April 2024
9 Modular Construction Market, Markets and Markets, Global Forecast to 2029, April 2024
10 Business, Construction, Australian Government DCCEEW, 2024
11 Can Modular Homes Solve the Housing Crisis?, Australian Broker, December 2023
12 Can Modular Homes Solve the Housing Crisis?, Australian Broker, December 2023
13 Can Modular Homes Solve the Housing Crisis?, Australian Broker, December 2023
