Increasingly,more people are living in fast-growing cities. These urban agglomerations are getting more complex and so are the buildings.Today’s commercial building facades resemble puzzles made of steel and glass. Larger, taller buildings require deeper foundations that become difficult to manage when they are built on soil of a lesser quality.
It would be quite unusual for an entire building to collapse, but partial collapses can happen when buildings are built on top of poor-quality soil, and this is often the case – particularly in big cities. Cracks appear when buildings settle. This can lead to difficult structural issues that are costly to rectify. Facades that are exposed to large variations in temperature or heavy winds are also subjectto high levels of stress.
With innovation, buildings are growing in complexity. To achieve energy savings, architects use more sophisticated materials in the facades with features such as better thermal performance, incorporation of wood, auto-cleaning glass panes and even solar panels. The use of pre-fabricated elements associated with new construction methods saves both time and money. The innovation that has taken place recently in the construction world comes with associated risks.
Unfortunately, these risk exposures remain largely uninsured. If a building suffers from defects that compromise its integrity, the owners need to locate and sue the faulty parties, contractors or developers. This is a battle in itself, particularly for those who are not construction specialists. And even when the responsible parties are identified, they may not be able to pay for damages incurred as their liabilities may far exceed their financial capacities. This then becomes a pure loss for the owner or investor,and the commercial value of the building declines.
In some cities, like London, bankers require an inherent defect insurance (IDI) cover. Most of the city’s landmarks have this coverage in place.
IDI covers the defects affecting the main elements of the building for a ten-year period as well as the associated loss of rent. For example, it would cover the replacement of the glass plates of a facade if the plates fell off. To carry out the works, the building needs to be evacuated and the lease suspended.
Some countries, including Spain, France, Denmark and more recently China (Shanghai),have made IDI cover compulsory with the aim of protecting the investments of individuals or government administrations in public buildings or social housing. This also helps improve the quality of construction by identifying and tracking the most common defects.
The IDI cover is a ten-year non-cancellable policy that covers the cost of rectifying building defects. Because of its non-cancelable aspect, a specific technical inspection needs to take place during construction. This ensures the quality of design and construction.
These concepts were recently presented during a workshop jointly organised by Swiss Re and Vina Re in Hanoi. Vietnam has been benefiting from continued economic development.Many of its citizens have relocated to its cities to capitalise on this growth.As the middle class emerges, the construction industry is booming. But investors and banks must be careful about their exposures, which are strictly monitored by the financial industry. IDI cover would make sense in Vietnam, and it could be adapted to local regulations by amending the period of coverage to five years instead of ten. This coverage would protect the savings of the local population and the investments made by the financial industry. It would also contribute, through the technical inspection process, to improving the performance and quality standards within the construction industry. Implementation of IDI would be an important contribution to making the world more resilient.