Technology shifts the risk exposure of buildings
Lockton has joined a number of other major firms such as construction company Vinci, real estate services firm JLL and real estate investors Hammerson and Segro in partnering with proptech investor Concrete VC to explore how technology is changing the real estate and construction sectors and how these new developments can benefit our clients.
“There is a lot happening in the real estate industry that is going to change particularly the concept of space and services,” says Chris Stephenson, Partner at Concrete VC.
Mixed usage and shared services are growing trends, with new property developments unifying living space with events and businesses to create new hotspots attracting a diverse set of clients and tenants. This flexible approach to the utilisation of the property opens up new revenue opportunities, so that pop-up retail shops and restaurants, for example, can improve the footfall in new developments at certain times of day but be given over to other uses outside of peak hours. Conversely a restaurant that operates only at night can offer work space during the day.
“Co-living is becoming more popular with shared bathrooms, kitchen and living room, requiring a different approach from an operator’s and owner’s perception, and technology can help address some of the issues resulting from that,” Stephenson explains.
Sensors in the building can collect data about the usage of the building such as heat, water or power consumption but also humidity or sound levels, which after an analysis can generate patterns and create new solutions and opportunities. A property’s electricity consumption profile can be benchmarked against other similar buildings. As a result, owners and operators can identify measures that may help to reduce the energy costs, Stephenson says. At the same time, if some facilities are rarely used, they can be converted to house new services. The use of different data sources can create various designs of the premises that may deliver an improved environment for tenants and their clients.
“Collecting data on a property is incredibly valuable,” Stephenson notes. “The analysis of how a building is being used, how many people are inside at which period of the day, the water and electricity usage, all can be used to determine improvement opportunities and boost the value of the building,” he explains.
Collecting data on a property is incredibly valuable".
While such data analysis may allow for a higher utilisation rate of buildings, as a result, it may also increase wear and tear and potential damage to the property. Again, the deployment of sensors can offer solutions, helping to reduce the risk profile of buildings. Detectors for smoke and fire are already widely used and water leak detection systems that can cut the water supply if necessary are becoming more common, Stephenson explains.
Sensors can also determine the integrity of a building that has endured an earthquake or storm, supplying data to assess the impact while making the claims process more efficient.
Similarly, the use of technology can assist with the regular maintenance needs of buildings. High resolution satellite image recognition, for example, allows for a much more efficient roof inspection of residential and corporate buildings.
“If there is a problem with the roof it can be assessed easily via the satellite image without personal inspection and allow for a swift quote and dispatch of a replacement order,” Stephenson explains.
So called smart ecosystems can even provide autonomous control of the building for example open the emergency exits when a fire is detected.
Similarly, technology can help improve safety and monitoring during the construction process, for example by tracking how long and when individual workers were on the building site, if they acted according to safety rules, and if they received the appropriate training and were wearing the required personal protective equipment for the job they were performing.
“This is something that is currently being developed and may offer more transparency in case of a claim,” Stephenson says.
“Image capturing can create a record of the construction of the building. That is pretty exciting and could help in determining responsibilities in case of claims,” Stephenson adds.
But while helping to reduce the risk profile of construction and the property itself, the spread of technology is also increasing information security and data privacy concerns. The growing use of digital technology in building management systems may increase the vulnerability to cyber-attacks. A malware could, for example, disable or take control of the building management system, blocking access without causing physical damage, which is the policy trigger for a claim.
In addition, the quickly changing of tenants, types of events and number of people utilising the building may change the risk profile of a property. Insurers take the occupancy of buildings into consideration for their risk assessment, splitting it into hazard groups. Offices and shops are, for example usually regarded as lower risk, while industrial or entertainment venues are generally considered as higher risk. The flexible usage of the premises may, for example determine the likelihood of a fire and therefore affect the insurance cover of the property.
Businesses and insurers need to explore alternative measures to combat flood damage.
Unless they are promptly detected and fixed, burst pipes can quickly cause a lot of damage to a property. This is not hard to understand when you consider that a burst pipe can release the equivalent of 50 bathtubs full of water in a single day.
Many of our real estate sector clients and their tenants will be following Government advice and have arranged for their employees to conduct business from home, rather than at their usual place of work. This is likely to become more widespread as time goes by, with a large number of premises becoming unoccupied or occupied intermittently.
Rates for professional indemnity (PI) in construction are likely to continue rising throughout the year as insurers reduce their exposure to this line following large claims in the space and a profitability review at Lloyd’s of London.