Chris Lewin considers the implications for actuaries of the RAAC concrete debacle.
RAAC stands for reinforced autoclaved aerated concrete, a lightweight cellular material that is only expected to last for about 30 years. It is made by adding aluminium into a lime or cement-based concrete mix, causing the formation of millions of tiny bubbles that make up most of the material. Steel reinforcement meshes are coated with a latex or cement mix to prevent corrosion, before the concrete is cast around it in a factory to form precast panels, used in roofs, floors and walls.
RAAC is cheaper than ordinary reinforced concrete, as well as being quicker and easier to install. It also has relatively good fire-resistance properties. For all these reasons, it was used extensively in the many public buildings constructed in the UK during the Fifties, Sixties and Seventies, when massive reconstruction was taking place after the Second World War. It was also used in Australia, Ireland, New Zealand, South Africa, Czechoslovakia, Japan, Poland and the Soviet Union.
What’s the issue?
The problem emerging is that structures based on RAAC panels are now liable to collapse suddenly – sometimes without obvious warnings, such as sagging roofs or cracking. For example, in 2018, a roof collapsed without warning at Singlewell Primary School in Gravesend, Kent. Even one or two buildings recently certified as safe by structural engineers have partially collapsed. Where there are warning signs, engineers have mitigated the problem to some extent by installing props, but this is a temporary solution. It is thought that the collapses are usually triggered by weakening of the RAAC material following prolonged water ingress, often because of inadequate roof maintenance.
In September 2022, the British government sent out a notice to property owners: “RAAC is now life expired and liable to collapse.” The problem could affect many types of building, including schools, hospitals, court buildings, prisons and – of particular concern – homes. Many of these will have been designed and constructed on behalf of public bodies, some for private businesses and investors. No one seems to have a clear idea of the scale of the problem.
How does this affect actuaries?
Many actuaries participate in managing the investment of funds that include property portfolios, and we should now insist that every building in a portfolio that was constructed after 1950 must be inspected as soon as possible for signs that it may contain RAAC. The original specifications, if available, may be of assistance here.
In buildings that do or might contain RAAC, roof inspections should be undertaken, leaks repaired urgently and consideration given to better and more regular roof maintenance in future. Internal inspections should also be carried out to look for tell-tale signs of deterioration. Where signs are found, urgent mitigation must be put in place. It will often be the case that maintenance matters have been delegated to a property firm, but property owners have a responsibility to ensure that sufficient action is being undertaken on their behalf, and should call for regular reports.
It might be possible in future for insurance companies to offer additional long-term products for buildings known to have limited lives
A further aspect in which actuaries may become involved is whether and when a building that does or may contain RAAC should be replaced. If replacement is decided upon, should it be rebuilt with RAAC or some other material? From a public sector viewpoint there may be some justification in using RAAC because of its cost advantage. This would mean more facilities could be constructed than if traditional materials were used, bringing greater social benefit.
RAAC is apparently still manufactured and installed all over the world, but it is now widely recognised that it must be properly designed, manufactured, installed and maintained. Cost-benefit analysis using discounted flow techniques, taking maintenance costs into account, may be used to determine the best solution. Such analyses should consider not only expected deterioration in building materials but also damage that may occur to buildings in future due to a greater frequency of storms and floods, caused by climate change.
All affected buildings will have insurance against fire and other incidents, but I wonder if it might be possible in future for insurance companies to offer additional long-term products for buildings known to have limited lives. For example, if a building has an expected future life of 30 years, could an insurance company offer a sinking fund that would meet the whole or part of the replacement cost at the end of that time?
If the building cost £1m originally, a sinking fund to meet the cost of replacing it in 30 years’ time would cost £21,000 per annum, assuming the fund could earn 3% per annum net interest throughout that period (where net interest is the gross interest rate less the price inflation rate for structural materials). The progress of the sinking fund would be monitored throughout the period and the sums paid in each year adjusted in light of interest earnings and new estimates of replacement costs.
If building collapses become more common in future – and there is no indication of this at present – there could be impacts on mortality rates and health costs, which actuaries might have to consider. However, with public concern awakened, the mitigations now starting to be put in place will hopefully prevent injury and loss of life.
Chris Lewin is an actuary and retired pensions director, and chair of the IFoA’s Infrastructure Working Party