Source: http://www.insurancejournal.com, February 3, 2017
By: Andrea Wells
With “smart” building becoming the gold standard in today’s commercial construction world, builders, building owners, workers and insurers are dealing with new technologies and risks. These smart technologies — from high tech gadgets aimed at increasing building efficiencies to wearable devices aimed at improving safety — are invading almost every corner of construction.
Whether smarter is better in the long run remains to be seen. This new world of construction brings advantages in sustainability and safety, but it also means additional risks related to costs, delays, materials as well as worker privacy and safety.
The smart or green building movement is growing faster than conventional construction, according to Mahesh Ramanujam, chief operating officer and incoming president and CEO of the U.S. Green Building Council (USGBC), which administers the LEED (Leadership in Energy and Environmental Design) certifications worldwide.
To date, there are nearly 90,000 commercial buildings and 120,000 residential projects participating in LEED across the U.S., saving energy and water, improving indoor air quality, saving businesses and homeowners money, and helping communities create jobs.
Scott Rasor, head of construction for Zurich North America, says most new buildings he sees qualify as “smart built” buildings.
“Contractors are seeking to provide a solution for the owners, for their customer, that delivers a building where the ongoing cost of maintenance of the building is reduced or maintained at a reasonable and foreseeable level,” Rasor said. “Owners will often ask, ‘How will this building function after it’s complete? What are the maintenance costs?’”
Rasor says building information modeling (BIM) — a construction design technology used to provide a  digital representation of physical and functional characteristics of a facility — and other new technologies help the owner plan and the schedule maintenance for buildings so it’s sustainable and maintained appropriately for the lifetime of the building.
Tom Boudreau, The Hartford’s head of construction and energy insurance, said interest in green building has been growing. “Many of the projects we are quoting and contractors we underwrite are emphasizing their commitment to green building and are proud of the fact that their project is seeking LEED certification or will have features centered around sustainability,” he told Insurance Journal.
“Virtually everything is ‘green’ in some fashion these days,” agreed Brian McDonnell, managing principal, construction practice at EPIC Insurance Brokers & Consultants based in San Francisco.
Bret Lawrence, partner and senior vice president at Woodruff-Sawyer & Co. based in San Francisco, said builders must go green to compete.
“If you are going to compete in commercial side of general building you have to have a component or some expertise in green building or LEED certification,” Lawrence said. “It’s a requirement almost at this stage in construction.”

Process and Risks

Not only are more buildings smarter, but the way they are being built is also smarter and driven by new technologies.
The Hartford’s Boudreau sees technology improving the means and methods, in conjunction with workers, of how construction gets done.
“We are also excited to see how advancements in building information modeling (BIM) and robotic demolition machines improve safety and productivity,” Bourdreau said.
McDonnell also points to increasing use of BIM, along with 360 video, drones, 3-D laser scanning and other technologies to improve the quality of construction and to address constructability issues.
Yet at times, McDonnell fears, the emphasis on technology can become too much and merits some “healthy skepticism.”
Some technology tools can be like a “solution looking for a problem,” he said.
Also, some green technologies are “introducing untested building materials into the mix,” which might increase risk.
He recalls the concrete construction specs from a municipality on a recent job. The aim was to lessen the construction carbon footprint, which required higher fly ash concentrations, which in turn affected cure times and concrete pounds per square inch. “While I’m not even close to an expert in that field, it is just an example of how green technology is introducing new building materials which may or may not perform relative to materials they are replacing such as floor coverings, drywall, wall coverings, etc., in an effort to be ‘green,’” he said.
He said large general contractors including Suffolk Construction, a large national firm, are forming teams to beta test the new technologies as they arrive to see if they are applicable to improve the timing and quality of construction.
McDonnell maintains that there continue to be differing opinions by experts in the field and contractors over how well “green” materials including concrete and other non-structural materials such as cork and bamboo flooring perform.
But he said the experts tend to agree that green materials increase construction costs and potentially impact project completion “due to delay and little historical evidence on performance relative to their use, both during and after construction operations are all possible issues.”

ZNEs and Smart Tech

The next advancement in green building taking hold in the construction world is zero net energy building. Zero net energy (ZNE) buildings are ultra-efficient construction and deep energy retrofit projects that consume only as much energy as they produce from clean, renewable resources.
“The greenest buildings now are really zero net energy buildings,” said Jim Untiedt, president of PentaRisk Insurance Services LLC based in San Jose, Calif.
The construction process is unique.
“You take these old concrete buildings that used to be warehouses. You cut holes. Put windows in. Put in sky lights. Put in systems in place where the building can pretty much generate its own energy, its own heat, its own air conditioning system by doing the old-fashioned thing of opening up windows and closing windows. Install lighting systems that take advantage of natural light that also heats the buildings,” he said.
Zero net energy buildings sometimes use recycled materials for construction and provide unique methods to recycling water.
ZNE has required some adjustment from insurers underwriters. “The insurance industry sort of had to catch up a little bit,” Untiedt said. “Our normal builder’s risk insurance products would pay for brand new products and not necessarily recycled products.”
He said most insurance companies over the last three to five years have developed green endorsements to the builder’s risk insurance policy to address those unique issues.
In Untiedt’s view, while there’s no real added exposures from green building materials, some smart technologies are increasing risks.
With smart technologies “you can hack into a building system and shut down these systems since they’re all dependent on their own building systems rather than outside power, gas and energy,” he said. He imagines an owner being unable to occupy a commercial building for a couple of days because it was held hostage. “Rather than holding a computer system hostage, why not hold a smart building hostage?” he asked.
This is where cyber liability insurance might come into play, he said.
Cyber liability exposures are a major concern in smart construction.
“I think cyber is really applicable to the construction industry because the more things we are able to control remotely the more potential exposures we have to the bad guys that are trying to get to our systems and our controls,” said Michael Born, vice president and account executive for Lockton Cos., who discussed the Internet of Things (IoT) at the IRMI Construction Risk Conference in Orlando in early November.
“Any kind of control that you have over a building… and we have more and more of this in our home systems all the way up to a commercial building… where you can do all those same things but the potential impact is much greater.”
Born said possible hacks into IoT technologies, including smart HVAC systems or refrigeration systems, could have possible effects from minor inconveniences or minor financial cost impairments or loss of business income, to serious property damage or even potentially bodily injury.
While the construction industry hasn’t yet seen any major cyber issues involving IoT technologies, in Born’s view it’s only a matter of time before cyber terrorists realize they can control physical objects, such as a commercial building, remotely and decide to target them.

Technology and Safety

Technology’s not all bad, of course. It is improving worker safety.
Wearable technologies can monitor heart rate, body temperature, perspiration levels, geophysical location, time in motion and even EEG brain waves and generate valuable human behavioral data for optimizing job sites large and small.
Zurich’s Rasor says some risk managers do have concerns about privacy when it comes to wearables. “They are trying to understand whether HIPAA or other laws around privacy with the individual versus actually monitoring of what’s going on at the job at the time that there might be risk,” he said.
But Rasor believes wearables and other high tech devices on the construction site can be very useful in reducing risk and, in the end, will mean fewer accidents and injuries.
“One of the things that we always worry about and issue warnings to our customers around are heat warnings,” Rasor said. “A wearable vest that could tell you that person’s body temperature could signal to a foreman or a supervisor to get that person off the job and get them hydrated before something bad happens.”
Construction sites are inherently dangerous, he said. “Bad things can happen. There’s falls from elevation. There’s trip hazards. When people are compromised, accidents happen. How do you prevent that?”
Virtual reality safety training programs offer another way to manage construction risk. Suffolk Construction envisions a virtual reality program where workers could walk through a jobsite and be presented with a scenario in which the worker must point out all the possible hidden dangers, such as live wires, misplaced ladders or a worker cutting a small piece of steel without wearing his protective goggles. Or if a real accident occurs on the job, the scenario could be recreated virtually to teach workers how to avoid the same mistake twice.
There is an area where technology may be lessening safety.
Smartphones are one technology that can be very positive and very negative. They improve communication on the construction site and provide instant information on safety. But if they can also cause their own set of problems.
“In some ways, absolutely, these technologies can have a big impact. Even the smartphone that we all carry around can be a huge positive for managing a construction site. But if you’re behind the wheel it’s a huge negative,” said Dennis M. Tsonis, senior vice president, construction practice leader at Arizona-based Lovitt-Touche.
He notes that the biggest cost issue right now in construction insurance is automobile claims driven by distracted driving.
“Auto claims are the biggest claims we see typically. It’s really got underwriters concerned,” Tsonis said.
In this case, technology may rescue itself. There is now new technology that will prevent the use of smartphones while driving vehicles. “That’s a very positive thing and we are just starting to see some clients adopt that technology,” Tsonis said.
Finally, not all technology is affordable. Tsonis points to GPS technology for fleet telematics as being a “huge help” in reducing risk but notes that it come with a cost. “Construction is still done with very thin margins for the most part and the cost is still a major issue for many of contractors,” he said.
For one large client with hundreds of vehicles, Tsonis said he even had an insurance company willing to pay half the cost.
But in the end, the construction client said the cost was still too high and decided against going the telematics route.
“That’s just how tight things are still in construction,” he said.