Ask the Expert: Modular Momentum

With modular construction gaining in popularity, a look at the associated risks

September 07, 2021 Photo

The Expert:

David Risko, Senior Broker, Construction, Aon Risk Services


QUESTION: What are some of the factors driving the expected future growth of modular construction?

A: Factors driving the increasing popularity of modular construction include:

  • Reduced construction cost.
  • Shorter construction term.
  • Higher quality building materials contribute to a better-completed project.
  • More favorable workers’ compensation exposure and loss history.

Q: In which areas are we seeing this growth? Is it primarily residential construction or are we seeing it in non-residential as well?

A: Modular construction started in residential and has now rapidly expanded into institutional, health care, and a variety of high-end commercial real estate projects. Modular construction is projected to exceed $150 billion within two years.

Q: How are the risks different, both from a construction standpoint and from an insurance standpoint, when it comes to modular construction? 

A: Modular construction is viewed as offsite construction, which highlights the key difference in exposure. Rather than using the traditional job site process that can involve coordination and sequencing of multiple trades, much of modular construction takes place at off-site manufacturing locations.

Construction activities that would ordinarily have to be sequenced can be performed simultaneously in modular construction. Also, by conducting construction activities in a more controlled environment, greater attention can be paid to quality control and worker safety. 

On the other hand, modular or offsite construction introduces some new challenges, such as transportation risk, product liability exposure, and completion delay arising from redesign and remanufacturing exposure.

Q: What should both industries be doing now to prepare for this expected rise in modular construction?

A: Construction, manufacturing, and insurance industries should be working together to develop insurance and risk management policies and programs that address modular construction exposures in first-party and third-party policies.

About The Authors
Phil Gusman

Phil Gusman is CLM's director of content.

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