IDEAS AT WORK

A Permanent Competitive Advantage

By Larry Williams, President
Steel Framing Alliance

The first headline reads: “Global Steel Prices: The Sky Is The Limit.” The other headline reads “Steel Imports To Rise In '08, Putting End To Price Hikes.” Not only do these stories paint a starkly different future for steel prices, they ironically appeared in print within days of each other the past week.

So who’s right? Which prediction can you bank on?

If I knew, do you think I’d be spending my Sunday night writing this column?

And in the end, it really shouldn’t matter as much as many of us seem to think it does.

Of course, material costs can – and do – have an impact on our ability to compete versus other materials. But it’s time we also embrace the fact that there’s more to determining our competitive position than the cost of a wood stud versus the cost of a steel stud.

Just take a look at the long list of advantages that we’ve touted for years, including high strength-to-weight ratio, resistance to termites, absence of a food source for mold, dimensional stability, non-combustibility . . . and so on. Followed to their logical conclusion, each will point to one more way that steel framing enables a builder to save money.

Several of these attributes converge to make a significant difference in the cost of insurance which is, next to the cost of labor and materials, often the single largest cost for a builder. As you know, the price of insurance can vary widely depending on many factors, including how long it takes to complete the project, the materials that are used, skill level and safety of workers, and the likelihood of future structural claims and lawsuits. According to brokers and underwriters we’ve talked to, the risks associated with all of these factors are greatly reduced with steel framing – resulting in considerably lower claim/lawsuit dollars lost over the course of a 10-year period. In the case of builders risk insurance, construction materials may play a significant role in determining the costs of the premium because “frame” or wood construction has a greater likelihood to burn or be damaged by a catastrophic event, such as wind or an earthquake, and that the event will be a total loss rather than a partial one.

The benefits of using steel framing can also impact the owner for future property insurance renewals. Like builders risk insurance, property coverage can include business income triggered by a coverage event. Because insurance underwriters have an appetite for non-combustible structures for their more favorable loss histories, they tend to compete harder for this type of business by offering more attractive premiums. This can represent a huge advantage for owners of a steel-framed structure because the savings recur every year when the policy is renewed at the non-combustible rate.

Putting this into practice is easier than it once was, but it still may require a bit of extra effort. When used for all of the structural elements in commercial and multifamily construction, Zurich, a leading writer of builders risk insurance, classifies steel framing as “superior construction” and the applicable rates can be from 25 to 75 percent lower than those for traditional frame structures. We have worked with them on this program since 2005 and I’ve seen quotes that prove this can add up to significant dollars. Other insurers also recognize steel framing as superior construction, but it may take a broker who is willing to work with you to find the right policy and pricing. AJ Gallagher & Co., one of the world’s largest insurance agents and brokers, offers a program in the western United States that packages and markets projects to insurance carriers in order to maximize the potential savings on insurance costs.

Homeowners also have hope. I’ve spoken with agents who report that they can consistently write homeowner’s insurance policies for steel-framed homes at lower rates because it is considered “superior construction,” and have spoken with homeowners who confirm savings of 50 percent on their annual premiums.

At the end of the day, material prices will change. It’s time that we begin to build our price advantages on things that will never change: durable, non-combustible, termite-proof, dimensionally stable, strong and ductile, environmentally-responsible steel framing.