Modern Methods of Construction (MMC), particularly modular construction, are no longer a niche innovation, but are rapidly becoming a central solution to the UK’s housing and infrastructure demands. Driven by the need for speed, efficiency, and scalability, modular construction is being positioned as a key delivery model for addressing the housing crisis.
However, while the benefits of such methods are well understood, the associated risks are developing just as rapidly and demand much greater attention from the insurance industry.
The rise of modular construction
At its core, modular construction is a delivery system. It enables buildings to be manufactured in controlled factory environments and assembled on-site at pace. This approach is gaining traction for several reasons.
First, the construction sector is facing a severe skills shortage. Estimates suggest the UK requires an additional 239,300 workers by 2029 to keep pace with demand, including tens of thousands of bricklayers. Traditional construction methods simply cannot scale quickly enough.[1]
Second, there is mounting pressure to deliver housing at speed. Modular construction allows developers to run site preparation and manufacturing activities in parallel, significantly reducing build times.
Finally, MMC is often promoted for its ESG credentials, including reduced waste and lower carbon emissions, though these claims remain subject to debate.
Taken together, these drivers mean modular construction is not a temporary trend, but rather a structural shift on construction practices which in turn will fundamentally change in the risk landscape.
A shifting risk environment
Unlike traditional construction, where risks are largely visible and managed on-site, modular construction moves risk upstream into factories, transport networks, and complex supply chains. Crucially, it often hides that risk until buildings are occupied.
One of the most significant differences is the concept of repeatability. In a factory setting, components are produced at scale. While this improves consistency, it also introduces systemic risk. A single defect, such as a poorly designed seal, can be replicated across hundreds of units. What might have been a minor issue in traditional construction becomes a portfolio-level loss event in modular.
Compounding this is the fact that defects are often concealed within finished modules. Pipework, wiring, and structural elements are hidden behind walls and finishes, making early detection difficult. In many cases, issues only emerge during commissioning or after residents move in.
The result is a risk profile where problems are hard to detect, expensive to diagnose, with the potential to scale across multiple units.
And the cost drivers are not always what you might expect. In modular construction, access is often more expensive than repair. Locating a defect may require opening up walls across multiple apartments, causing disruption, additional damage, and significant cost escalation.
Complexity across the lifecycle
Modular construction also introduces a multi-stage risk chain, where issues can arise at several points:
- During manufacturing (design or production defects)
- In transit (damage during handling or exposure to weather)
- During on-site assembly (alignment and sealing issues)
- After occupation (latent defects under real-world use)
This creates a fundamental challenge for insurers: the question is no longer just what failed, but where and when did it fail?
Causation becomes more complex, and so does liability. A water ingress issue, for example, could stem from a factory defect, transport damage, or poor on-site installation. This ambiguity increases the potential for disputes and complicates claims handling.
What this means for insurers
For insurers, modular construction represents a material shift in exposure.
Many of these buildings are currently protected by 10-year warranties. However, as these warranties expire, risk is transferring directly into the insurance market. This transition is already underway, and the industry needs to be fully prepared.
Several key challenges are emerging:
- Lack of historical data: Unlike traditional construction, there is limited long-term performance data to support underwriting decisions.
- Aggregation risk: A single defect can impact hundreds of units, significantly increasing loss severity.
- Repair complexity: Hidden defects and poor access drive up claims costs and prolong resolution times.
- Supply chain fragility: Contractor insolvency can result in loss of expertise and accountability.
- Coverage uncertainty: Questions around causation and responsibility can lead to disputes over policy response.
It is therefore unsurprising that some insurers are becoming more cautious, or even reluctant, to provide cover for modular buildings.
Addressing the claims reality
When losses occur, the challenges become even more pronounced.
Large-scale defects can result in:
- Resident decanting and alternative accommodation costs
- Loss of rental income
- Extensive investigation and intrusive inspections
- Prolonged disruption and reputational impact
A key insight is that modern construction requires modern claims readiness. Traditional repair models are often not equipped to deal with modular systems, and there is currently a shortage of specialist skills in the market.
Without the right expertise, claims can become more expensive, more contentious, and more difficult to resolve.
What the industry should do now
The shift to modular construction is already underway, and the insurance industry needs to respond to what is a current and growing exposure that requires a more structured and informed approach.
A critical first step is improving evidence and transparency across the construction lifecycle. Insurers need access to a clear “golden thread” of information that captures quality assurance processes, change control, commissioning data, and full traceability from factory through to installation and handover.
Without this, underwriting decisions are made with limited visibility, and claims can quickly become disputed due to uncertainty around causation and responsibility. Better evidence ultimately leads to better outcomes, helping to reduce ambiguity, improve decision-making, and limit disruption when losses occur.
At the same time, there is an urgent need to build specialist knowledge and capability across the insurance ecosystem. Modular construction introduces fundamentally different risks, and many existing roles, whether in underwriting, loss adjusting, or repair, are not yet equipped to deal with them. Developing this expertise will be essential to accurately assess exposure and respond effectively to claims.
At Crawford, for example, we are developing a specialist supply chain within our Contractor Connection team focused on diagnosing and remediating defects in modular construction. Initiatives like this highlight the growing recognition that traditional repair models are not sufficient for these modern building systems.
Finally, the industry must embrace greater collaboration. The complexity of modular construction means that no single party – insurer, loss adjuster, or contractor – can fully address the challenge in isolation. A more coordinated, cross-industry approach is needed to share knowledge, develop best practices, and create consistent standards. Collaboration will be key not only to improving claims outcomes, but also to strengthening overall risk management as modular construction becomes more prevalent.
While the risks associated with modern methods of construction cannot be eliminated, decisive action is needed to ensure all stakeholders understand and effectively manage their exposures.
Tony Derbyshire has recently presented on this topic at Crawford’s Manchester and Leeds Technical Forums. To express your interest in future Technical Forums, you may register here.
