Insurance Policies for Condition-Based Maintenance Plans of ETICS

Abstract

Currently, insurance companies exclude the buildings’ envelope of their policies since they lack reliable information about the risks and degradation models and are unable to estimate the probabilities of intervention and corresponding costs. This study intends to overcome the existing gap, proposing property maintenance insurance policies developed based on condition-based maintenance plans, using stochastic information regarding the degradation process of the buildings’ envelope elements in the definition of insurance policies. To perform this work, external thermal insulation composite systems (ETICS) are used as case study, for the definition of an insurance policy. This approach allows reducing the uncertainty associated with the degradation of ETICS even when subject to scheduled maintenance actions. Several insurance policies are analysed, with different insurance premiums, evaluating different risks accepted by the owners when adopting a certain maintenance plan. For owners, the main advantages of acquiring this insurance product are: (i) changing the nature of the risk, transferring the risk to the insurer; and (ii) increasing the asset’s equity value, reducing the risk associated with the degradation of ETICS and the uncertainty of maintenance costs over time.

1. Introduction

The degradation of buildings and their components is an inevitable process, from the moment they are built and put into use [1]. Maintenance is the most effective way to minimize the building elements’ degradation pace as well as prolonging their service life [2]. However, even with a rational and complete maintenance plan, there is always a risk that the building elements deteriorate at a faster pace, compared to what was planned, requiring the anticipation of the necessary maintenance actions, so as not to compromise the durability of these elements. In England [1,3], the buildings’ owners are responsible for all the injuries and losses caused by accidents due to anomalies in buildings and their components. The insurance companies exclude from their policies the coverage of any damage caused by the failure of the constructive elements due to lack of maintenance or inadequate maintenance. However, the risks of premature degradation and the uncertainty about maintenance costs can be mitigated by associating insurance policies with the maintenance contract for the building elements.

In this study, exhaustive research was performed, and several studies addressing insurance policies in buildings were found (Figure 1). The existing studies are more concerned with the construction stage [4], with real estate mortgages and warranty schemes [5], with fire and multi-hazard (these insurances are often mandatory in many countries) [6], or with floods, hurricanes, or seismic events [7,8,9,10].

The insurance market excludes the buildings’ envelope of their policies due to the lack of reliable information about the risks of degradation of these components, being unable to predict the probability of failure and the related costs. In this sense, no studies were found in the literature (other than previous studies by the authors [11,12]), nor are real insurance policies associated with the maintenance of façade claddings [13]. This study intends to respond to the lack of insurance related to the risk of anticipated degradation of the building envelope elements. In this sense, an insurance policy associated with a maintenance plan is proposed, to face the risk of needing anticipated maintenance of external thermal insulation composite systems (ETICS), within a 40-year horizon. This investigation begins with a survey of existing insurance products on the market, followed by an analysis of the feasibility of a new insurance product in terms of the potential target market. A methodology for calculating the insurance policy for ETICS is then developed. Maintenance plans are defined through stochastic maintenance models, based on the condition of the element, and using Petri nets, according to the authors’ previous work [14,15]. Next, the insurance policies are estimated using the proposed maintenance plans and the scenarios defined for insurance underwriting. Finally, the model is applied to a case study, i.e., the costs are calculated, and a policy is selected for a real building, coated with a current rendering, and with a known maintenance history.

2. Background

2.1. Insurance Policies for External Claddings

The origin of insurance is associated with the concept of reducing the risk of unexpected losses [16,17]. The first foundations of modern insurance emerged in the form of solidarity and compensation to help those affected by misfortune [18]. In the Mesopotamian civilization, there was a system of mutual assistance in case goods transported in caravans did not reach their destination [19]. In the Middle Ages, the concept of “insurance” emerged, with the transfer of the risk of an activity to third parties. In particular, a maritime insurance was conceived, through an association of merchants, in which a contract was established in which everyone agreed to guarantee, for a previously fixed amount, that whoever lost his boat and cargo due to shipwreck would be reimbursed for the loss [20]. In 1666, with the great fire of London, the first insurances for buildings appeared, namely insurance against fire risk [18]. Later, several insurance products emerged to protect customers against unforeseen losses in buildings, mostly aimed at the construction phase of the building and the construction guarantee period [17,21]. In terms of the building use phase, there are generally fire insurance and multi-risk insurance, which protect buildings from accidents of various natures, such as explosion, flood, lightning, seismic phenomena, and civil liability towards neighbours and theft [11,22]. However, it was found that there is practically no insurance to partially protect buildings against damage related to the degradation of the building envelope elements, such as the facade cladding [12].

This study intends to fill this gap by developing an insurance to face the risk of anticipated degradation of the elements of the building envelope, more specifically for external thermal insulation composite systems (ETICS). Therefore, the proposed insurance policies are designed based on the: (i) prediction of the costs associated with claims, considering normal operating conditions and unforeseen situations; and (ii) financial analysis of the risk premium, based on market projections, the expected profit margin, and the industry’s average return on investment. Several insurance policies are analysed, with different risk premiums, evaluating different risks accepted by the owners when adopting a maintenance plan. Thus, the proposed insurance policies are adjusted according to the maintenance plan contracted for the building and the age of the coating. For owners, the main advantages of acquiring this type of insurance product are: (i) changing the nature of the risk and its allocation, transferring the risk to the insurer; and (ii) increasing the asset’s equity value, reducing the risk associated with the degradation of ETICS and the uncertainty of maintenance costs over time.

2.2. Insurance Target Market

The viability of an insurance operation implies the mass issuance of contracts by the insurance company [23]. This study analysed the potential market for this type of insurance, namely the number of buildings in Portugal with an external coating in ETICS. Based on the latest detailed data made available by the Portuguese Institute of Statistics, the 2011 Census [24], the information on the exterior claddings in buildings was analysed, according to the period of construction and by the main material used in the construction of buildings built until 2011. The data reveal a total of 3,554,389 buildings constructed, and preliminary data from the 2021 census [25] point to an increase of about 1.2% to this value (3,587,669 buildings). The available information reveals that the most used coating on the exterior of buildings in Portugal is traditional renderings and marble, present in about 84% of existing buildings, corresponding to 2,977,132 buildings, built up to 2011. ETICS do not appear individually identified in the statistical data. They are included in the category of other exterior coatings in buildings, present in 0.65% of existing buildings, corresponding to around 23,037 buildings, built up to 2011. This type of coating only began to be used more significantly in Portugal from 2005 onwards, given the new requirements for the thermal behaviour of buildings [25]. Consequently, considering the category of other coatings such as ETICS, and in the absence of more precise data, a market is estimated for around 3288 buildings to be insured, according to the 2011 Census [24] and considering only the period 2006–2011, with an increasing trend for the following decade due to the growing concern about the energy efficiency of buildings.

This insurance product should be more geared towards the maintenance of ETICS and, in this sense, it is also important to consider the repair needs of this type of coating in the building stock. According to data made available by INE on the need for repairs to the exterior walls and frames [24], 64.56% of the existing buildings present a good conservation condition at the level of the exterior walls and did not need to be repaired. On the other hand, 5.93% of the buildings show large and very large repair needs. In this sense, and in the search for an insurance product more focused on the maintenance of the elements of the building envelope, it is possible to correlate the data related to the exterior coatings of the buildings with the repairs needed on the exterior walls and to estimate a possible market for this type of maintenance insurance. Establishing this proportionality for the 3288 buildings with ETICS, there is thus a potential universe of application of this type of insurance of 3270 buildings.

3. Materials and Methods

3.1. Research Method

The research methodology of the present study is illustrated in Figure 2. The first step was a literature review, revealing a lack of studies in this area. This study proposes an innovative insurance policy for the buildings’ envelope. As mentioned in the previous sections, the insurance companies are not available to have this type of product due to the lack of reliable data on the degradation of these elements as well as regarding the risk associated with that degradation. Therefore, this research encompasses the following steps: (1) definition of the insurance target market, to analyse the economic viability of this product; (2) creation of a degradation model, based on the assessment of the degradation condition of 378 ETICS, adopting a sigmoidal degradation curve [26,27]; (3) development of a condition-based maintenance model, using Petri nets [14,15]; (4) performance of a risk analysis, based on the condition-based maintenance model, regarding the risk of transition between degradation conditions and the risk related to the anticipation of the maintenance actions and costs, when compared with the maintenance plan under contract; and (5) definition of an insurance policy, considering the maintenance plan contracted and the risks of anticipated maintenance actions.

3.2. Methodology for the Definition of an Insurance Policy for ETICS

This study proposes a methodology to combine an insurance policy with a contract for the maintenance of ETICS, throughout their service life, in order to mitigate the risk of anticipated degradation of this element of the building envelope, and to postpone its full replacement. Therefore, in order to guarantee an adequate condition and performance of the elements of the building envelope, maintenance actions must be carried out throughout its service life, according to the condition of the element at a given moment in time. In turn, the design of an insurance policy is directed towards the risk of the need for advance maintenance of ETICS in view of a previously defined maintenance plan. The creation of an insurance policy implies the existence of a risk profile of the object to be insured, so that, later, based on the costs of the actions, the respective annual premium is determined.

In this sense, it is important for the insurer to have information on the insured object and its surrounding environment. In ETICS, these characteristics can be collected through a visual inspection, carried out by the team responsible for the building’s maintenance, and with the help of inspection sheets or a computational tool that allows characterising the element’s state of degradation at the time of inspection. The evaluation of the overall degradation condition of ETICS is carried out through the calculation of the severity of degradation index (S_w), expressed by Equation (1), according to the service life prediction model initially proposed by Gaspar and de Brito [28]. This numerical index is determined through the ratio between the weighted degraded area and a reference area, equivalent to the entire façade with the highest possible level of degradation [1].

$$S_w=\frac{\sum (A_n\times k_n)}{A\times k}$$

(1)

where S_w represents the severity of degradation of ETICS, expressed as a percentage; A_n the area of the element affected by the anomaly n, in m²; k_n the defect n multiplying factor, in terms of its degradation level, within the K = {0, 1, 2, 3, 4} range; A the total façade area, in m²; and k the multiplying factor corresponding to the highest degradation condition level of the cladded area. This quantitative index (S_w) can be associated to a qualitative scale composed of five degradation conditions: condition A—no visible degradation (S_w ≤ 1%); condition B—good (1% < S_w ≤ 10%); condition C—slight degradation (10% < S_w ≤ 30%); condition D—moderate degradation (30% < S_w ≤ 50%); and condition E—generalized degradation (S_w ≥ 50%) [26,27,28,29,30]. This system thus makes it possible to assess the degradation condition of ETICS and schedule maintenance actions based on these degradation scales.

In the risk analysis, other important information must also be collected, e.g., the age of the coating, the ETICS’ characteristics, and the environmental exposure conditions. In the proposed insurance model, the risk profile is translated into the need to carry out an anticipated action or a deeper maintenance action, which is different from the planned one. Consequently, the loss to be covered by the insurer is related to the anticipation of these actions. The estimation of the costs related to these actions is fundamental in the development of this type of insurance and in the calculation of the respective insurance premium, since it allows estimating the value of future losses. The calculation of the insurance premium thus implies knowing the possible moments in which the indemnities may occur during the life of the element and their costs. Based on the stochastic maintenance models developed for ETICS [14,31], it is possible to access the moments for the need of intervention through the transition probabilities of the degradation condition obtained from these models (this information is described in detail in Section 3). In addition, the value of the cost to carry out these unforeseen actions in the future must be estimated. In other words, financial flows can occur at different times in the future and, therefore, it is necessary to update them to a reference moment. The present value (PV) of the future payment of the claim can be calculated through Equation (2).

$$PV=\frac{C_t}{{\left(1+r\right)}^t}$$

(2)

where C_t is the cost, in euros, payable at the end of year t, at discount rate r [32]. Applying the formula to the calculation of the present value of the costs of maintaining the element (ETICS), Equation (3) is used.

$$PV,cost=\sum \left(\frac{C_{t,real \left(insp\right)}}{{\left(1+r_{real, cost}\right)}^{t_n}}\right)+\frac{C_{t,real \left(B\right)}}{{\left(1+r_{real, cost}\right)}^{t_B}}+\frac{C_{t,real \left(C\right)}}{{\left(1+r_{real, cost}\right)}^{t_C }}+\frac{C_{t,real \left(D\right)}}{{\left(1+r_{real, cost}\right)}^{t_D }}$$

(3)

where C_t,real(insp) corresponds to the inspection cost and C_t,real(B), C_t,real(C), and C_t,real(D) correspond to the costs of maintenance actions when the element reaches the degradation conditions B, C, and D, respectively. These actions are further described in the next section. The instants t_B, t_C, and t_D correspond to the years in which the costs associated with maintenance actions occur and the instant t_n to the inspection moments. The real discount rate of the cost, (r_real,cost), represents the discount of the cost of maintenance actions and relates the nominal discount rate, r_nom, and the sector’s inflation, i_s, according to Equation (4).

$$r_{real, cost}=\frac{1+r_{nom}}{1+i_s}-1$$

(4)

The calculation of the present value of the insurance premium is given by Equation (5). The term Ct,premium corresponds to the annual premium payable in €/m².

$$PV,premium=\frac{C_{t,premium}}{{\left(1+r_{real, premium}\right)}^1}+\frac{C_{t,premium}}{{\left(1+r_{real, premium}\right)}^2}+\dots +\frac{C_{t,premium}}{{\left(1+r_{real,premium}\right)}^{40}}$$

(5)

where r_real,premium is the real discount rate relative to the premium, which takes into account the nominal discount rate, r_nom, the sector’s inflation, i_s, and general inflation, i_g (Equation (6)).

$$r_{real, premium}=\frac{1+r_{nom}}{\left(1+i_s\right)\times \left(1+i_g\right)}-1$$

(6)

The value of the annual premium payable for the insured product, C_t,premium, is obtained by equalling the net present value of maintenance costs (PV,cost) to the present value of the premium (PV,premium) (Equations (3) and (5), respectively). The application of this methodology to ETICS and the respective values of each parameter are presented in detail in Section 4.

4. Maintenance Plans for ETICS

4.1. Costs of Maintenance Actions

In this study, four types of maintenance actions are defined to be carried out in ETICS throughout its service life:

• Inspections—€1.03/m² (3-year periodicity);
• Cleaning operation (CO)—Condition B (S_w > 1% to 10%)—€26.88/m²;
• Light maintenance action (LMA)—Condition C (S_w > 10% to 30%)—€58.13/m²;
• Total replacement (TR)—Condition D (S_w > 30%)—€95.98/m².

Cleaning operations are the first action to be carried out on ETICS and intend to eliminate visual and aesthetic anomalies. After an inspection of the façade, which should take place every 3 years, this action is carried out if the coating is in degradation condition B, corresponding to a degradation severity (S_w) between 1% and 10%. This type of intervention generally consists of a water jet cleaning and manual brushing of the surface in order to remove visual anomalies present in the coating, such as surface dirt, stains, and the presence of microorganisms. The costs inherent to this action are presented in

Table 1. Cost of cleaning operations in ETICS.

Description	Unity	Yield	Unit Cost	Total Cost
Scaffolding				10.20 €
Hire, assembly, dismantling, transport, and removal of scaffolding. Rental, for 15 calendar days, of standardized tubular scaffolding, multidirectional, up to 10 m maximum working height, for the execution of a façade with 250 m2	m2	-	10.20 €	10.20 €
Cleaning operations Cleaning with water jet and manual brushing				16.68 €
Materials				1.70 €
Water	m3	0.039	1.50 €	0.06 €
Colourless alkaline detergent	L	0.200	-	-
Application of diluted hydrochloric acid solution, with a yield of 0.30 L/m², for cleaning efflorescence	L	0.300	-	-
Application of broad-spectrum biocide to eliminate fungi and algae on facades (diluted in water from 20% to 30%)	L	0.119	13.81 €	1.64 €
Contact herbicide for the destruction of herbaceous plants and roots	L	0.005	-	-
Equipment				0.52 €
Low pressure water jet equipment	h	0.097	5.41 €	0.52 €
Hand sprayer for phytosanitary and herbicide treatments	h	0.017	-	-
Labor				14.13 €
1st construction officer	h	0.405	18.48 €	7.19 €
Unskilled construction worker	h	0.447	17.84 €	6.94 €
Complementary direct costs *	%	2	16.35 €	0.33 €
Total cost	m2			26.88 €

* Equipment and tools associated with the work, which are not contemplated in the unit cost of each item.

.

The light maintenance action is carried out after an inspection of the facade, when ETICS present an intermediate condition of degradation (condition C), corresponding to a severity of degradation (S_w) between 10% and 30%. This maintenance action includes a cleaning operation (Table 1), repairs, and partial replacement of the coating system. The cost of these actions varies depending on the technique and the area of cladding repaired. The costs for this maintenance action are shown in

Table 2. Cost of light maintenance actions in ETICS.

Description	Unity	Yield	Unit Cost	Total Cost
Scaffolding				10.20 €
Hire, assembly, dismantling, transport, and removal of scaffolding. Rental, for 15 calendar days, of standardized tubular scaffolding, multidirectional, up to 10 m maximum working height, for the execution of a façade with 250 m2	m2	-	10.20 €	10.20 €
Cleaning operations Cleaning with water jet and manual brushing				16.68 €
Loss of integrity				10.07 €
Superficial crack repair	%	25	34.45 €	6.55 €
Deep crack repair	%	5	85.78 €	3.43 €
Replacement of deteriorated corners	%	10	1.08 €	0.09 €
Loss of adhesion				10.34 €
Partial replacement of the finishing layer that presents blistering, with possible mechanical reinforcement of the fixing of the plates	%	40	34.45 €	10.34 €
Anomalies in joints	%	40		10.84 €
Partial replacement of the finishing layer and replacement of mechanical fastenings on plates that have cracks in the joints and visualization of joints between plates			36.13 €	10.84 €
Total cost	m2			58.13 €

. For more details, see [14,31].

The total replacement of the ETICS occurs when the coating reaches its end of service life, corresponding to the degradation condition D (for a severity of degradation equal or higher to 30%), and includes the removal of the existing layer, and the regularization and application of a new coating system [33].

4.2. Maintenance Strategies and Maintenance Action Moments

In order to analyse the impact of maintenance actions on the performance over the lifetime of ETICS, three maintenance strategies are defined [14]:

• MS1: total replacement (TR);
• MS2: light maintenance action (LMA) + total replacement (TR);
• MS3: cleaning operation (CO) + light maintenance action (LMA) + total replacement (TR).

MS1 is defined as the solution most adopted by the owners, where the coating is replaced only when it reaches the end of its service life, with no maintenance during this period. The MS2 is selected to delay or mitigate the coating degradation process in order to maintain adequate building performance and prevent operational interruptions. This strategy intends to demonstrate that small repair actions allow increasing the service life of the element. MS3 adds the cleaning operations to MS2, as it is a maintenance action currently applied to coatings on the building envelope, as it is more economical and less technically demanding. Therefore, based on the stochastic maintenance models previously developed for the three maintenance strategies [21], and considering a probability of occurrence of 50% relative to the transition from the degradation condition of ETICS, the most likely instants (with known probability) of maintenance actions are presented in

Table 3. Instants for the total replacement of ETICS considering the first maintenance strategy (MS1), considering a time horizon of 40 years.

Maintenance Action	Condition	50% Probability of Transition between the Degradation Conditions
		Probable Instant of Maintenance Action (Years)
1st TR	C–D	17
2nd TR	C–D	34

,

Table 4. Instants for the maintenance actions in ETICS considering the second maintenance strategy (MS2), considering a time horizon of 40 years.

Maintenance Action	Condition	50% Probability of Transition between the Degradation Conditions
		Probable Instant of Maintenance Action (Years)
1st LMA	B–C	10
2nd LMA	B–C	18
1st TR	C–D	32

and

Table 5. Instants for the maintenance actions in ETICS considering the third maintenance strategy (MS3), considering a time horizon of 40 years.

Maintenance Action	Condition	50% Probability of Transition between the Degradation Conditions
		Probable Instant of Maintenance Action (Years)
1st CO	A–B	2
2nd CO	A–B	6
1st LMA	B–C	15
3rd CO	A–B	21
4th CO	A–B	25
2nd LMA	B–C	27

. For the moments of maintenance actions in ETICS, a time horizon of 40 years was assumed for the calculation of the insurance value. The time for occurring a maintenance action is given by a probability of 50% for the transition between two degradation conditions, according to the condition-based maintenance model adopted [14,31]. For example, the cleaning operation (CO) occurs when the coating is in condition B, then the time from which such action becomes necessary occurs for a 50% probability of transition between conditions A and B. This risk margin of 50% is considered acceptable by the experts consulted but different risk thresholds (i.e., the probability of ETICS reaching specific degradation values) can adopted. Nevertheless, the risk’s reduction is equivalent to an anticipation of the maintenance action’s schedule, increasing the maintenance costs and the premium. In a previous study by the authors [11], this risk margin proves to be a realistic compromise between acceptable costs for the insured and the insurer, keeping the coatings in adequate performance conditions.

For MS1, two maintenance actions must be carried out on ETICS, in years 17 and 34, when there is a 50% probability of the ETICS reaching its end of service life and requiring a replacement to restore an adequate performance condition. In turn, when applying MS2, the need for a total replacement occurs only once, for a horizon of 40 years. Thus, and according to the probabilities of need of a maintenance action in Table 4, for MS2, two light maintenance actions (LMA) are expected to be performed in years 10 and 18, and a total replacement to occur in year 32. In turn, for MS3, four cleaning operations (CO) are considered in years 2, 6, 21, and 25, and two LI in years 15 and 27 (Table 5).

4.3. Maintenance Plans

Having defined the costs of actions, strategies, and maintenance actions times for a probability of occurrence, the annualized maintenance costs of each strategy for ETICS can be estimated. This calculation is made for a horizon of 40 years, assuming that the maintenance contract is carried out in the zero year of use of the building. In this sense, an update of the costs was carried out, through the present value (PV), in accordance with Equations (3) and (4). To obtain the results, a discount rate of 4%, a sector inflation rate (i_s) of 1.9%, and a general inflation rate (i_g) of 1.8% are considered [33]. In accordance with the strategies defined in the previous section,

Table 6. Annualized cost of maintenance for the first maintenance strategy (MS1), considering a time horizon of 40 years.

Moment of Maintenance Action			Costs
Condition	Action	Age	Cost of Action	Annualized Cost or Present Value (PV) after 40 Years (€/m2)	Annualized Cost (€/m2)
D	TR	17	95.98
D	TR	34	95.98
			∑	124.779	3.286

,

Table 7. Annualized cost of maintenance for the second maintenance strategy (MS2), considering a time horizon of 40 years.

Moment of Maintenance Action			Costs
Condition	Action	Age	Action	Annualized Cost or Present Value (PV) after 40 Years (€/m2)	Annualized Cost (€/m2)
C	LMA	10	58.13
C	LMA	18	58.13
D	TR	32	95.98
			∑	146.592	3.860

and

Table 8. Annualized cost of maintenance for the third maintenance strategy (MS3), considering a time horizon of 40 years.

Moment of Maintenance Action			Costs
Condition	Action	Age	Action	Annualized Cost or Present Value (PV) after 40 Years (€/m2)	Annualized Cost (€/m2)
B	CO	2	26.88
B	CO	6	26.88
C	LMA	15	58.13
B	CO	21	26.88
B	CO	25	26.88
C	LMA	27	58.13
			∑	168.29	4.438

show the values for PV and annualized maintenance costs, considering the different maintenance strategies (MS) and a probability of occurrence of 50%.

As per the values obtained, the MS1 strategy proves to be the most economical, with an annualized maintenance cost of 3.286 €/m² of coated facade, for a 40-year time horizon. This corresponds to a 50% probability of occurrence of the actions at the scheduled time and, thus, to 50% risk of the action being required earlier. More specifically, the condition-based maintenance adopted in this study reveals that, in the universe of the ETICS analysed, half reach the degradation condition D after year 17 and, at that time, a first total replacement of the coating will be necessary. One more action of the same type is required at year 34. These actions correspond to a present value at year 40 of 124.779 €/m² and a maintenance cost of 3.286 €/m²/year. All costs shown are applicable to maintenance strategies carried out after the construction of the building. In the case of MS2, light maintenance actions are also performed in the coating. Thus, for a probability of occurrence of 50%, two light maintenance actions and a total replacement are required during the time horizon, as shown in Table 7. These actions correspond to a present value (PV) at year 40 of 146.592 €/m² and a cost maintenance fee of 3.860 €/m²/year. For MS3, the same reasoning is adopted, but cleaning operations are added to the maintenance strategy. Consequently, for a probability of occurrence of 50%, four cleaning operations and two light maintenance actions are necessary during the time horizon. These actions correspond to a 40-year PV of 168.519 €/m² and a maintenance cost of 4.438 €/m²/year. Additionally, in the three strategies presented, the costs of periodic inspections to occur every 3 years were included.

Once the costs of the various maintenance strategies are estimated, several maintenance plans are described, their coverage, conditions, advantages, and disadvantages, according to the objectives of the owners or managers of the buildings. The choice of the best solution may involve considering a reduction in the risk of the coating reaching the end of its service life, a reduction in the cost, or the presentation of a better condition of degradation of the ETICS throughout its service life. In other words, the best solution must ensure that the ETICS remains in the most favourable conditions of degradation (A and B) for a longer period. To evaluate this last parameter, the efficiency index, EI, can be used, which measures the efficiency of each maintenance strategy, namely the ability to keep the element in a more favourable degradation condition [31]. To evaluate the most advantageous strategy in economic terms, the relationship between the efficiency index and the annualized maintenance cost can be established, and the greater the value of this relationship, the more advantageous the maintenance strategy.

Table 9. Maintenance plans applicable to ETICS.

Maintenance Plan	Maintenance Strategy	Cost of Actions (€/m2)	End of Service Life (Years)	tpa,B * (Years)	Eficciency Index (EI)	Annualised Maintenance Cost (€/m2)	EI/ Annualised Cost	Plan Application Conditions
Low-cost	MS1prob.50 (2 TR)	95.98	17	24.8	0.68	3.286	0.21	Two replacement of the ETICS in years 17 and 34. Applicable up to 40 years of age of the coating. Periodic inspections every 3 years are included.
Standard	MS2prob.50 (2 LMA; 1 TR)	58.13; 95.98	32	29.8	0.71	3.860	0.18	Two light interventions carried out, in years 10 and 18, and one TR in year 32. Applicable up to 40 years of age of the coating. Periodic inspections every 3 years are included.
Superior	MS3prob.50 (4 CO; 2 LMA)	26.88; 58.13	44	33.8	0.76	4.438	0.17	Four cleaning operations are included, in years 2, 6, 21, and 25, and two light interventions in years 15 and 27. Applicable up to 40 years of age of the coating. Periodic inspections every 3 years are included.
Without maintenance	-	-	17	9.4	0.31	-	-	-

* Simulated for a 40-year horizon.

presents a summary table where three maintenance plans are presented for ETICS. The annualized maintenance costs were studied for new buildings, i.e., a zero age was considered at the time of contracting the maintenance plan with a duration of 40 years. Of the options proposed, the most economical is the low-cost plan, which costs 3.286 €/m²/year, and which guarantees the execution of two ETICS replacements at 17 and 34 years. Compared to the maintenance-free option, there is a significant improvement in the efficiency index and the permanence time (t_pA,B) in the best degradation conditions, from 9.4 years to 24.8 years, in a 40-year model. Additionally, the low-cost plan is also the one with the best ratio between the efficiency index and the annualized maintenance cost (0.21) of all the alternatives. On the other hand, the premium plan presents the highest annualized cost among the options, with a cost of 4.438 €/m²/year. However, the premium plan shows the best efficiency index of the maintenance strategy, 0.76, i.e., it maintains the ETICS in a better degradation condition throughout its service life. On average, this strategy maintains the coating in condition A and B for another 9 years compared to the low-cost plan. The premium plan provides four cleaning operations and two light maintenance actions on the ETICS up to 40 years of age. On the other hand, it is still the least advantageous solution considering the ratio of efficiency index and annualized cost, with a value of 0.17. The standard plan is the intermediate solution, which, despite being more expensive compared to the first option (low-cost), reduces the risk of the facade cladding needing to be replaced earlier, by carrying out light maintenance actions along its lifespan. In other words, this option allows postponing the replacement by 15 years and keep the ETICS in top condition for another 5 years. In addition, this plan makes it possible to increase the performance of the ETICS compared to the low-cost plan, with an efficiency index of 0.71, through the mitigation of anomalies and the maintenance of a better condition of degradation throughout the service life of the ETICS.

5. Insurance Policy for ETICS

The degradation process of ETICS with an associated maintenance plan still presents a risk of early degradation. Maintenance contracts cannot address this risk, which is related to the probability that the coating degrades more rapidly and, consequently, that maintenance action will be required earlier than defined in the maintenance plan. There may also be a need for another type of deeper maintenance action in the ETICS at a given moment, and insurance must cover this risk. In this context, several insurance policies are studied to apply to ETICS to protect the owners or managers of buildings from the risk of anticipated degradation of the coatings and a consequent decrease in their service life. In this sense, to define an insurance policy for ETICS, information regarding the probability that the actions will be necessary earlier is essential, in relation to the maintenance plan, and the respective cost of these maintenance actions.

The probabilities of the need for maintenance actions depending on the strategy adopted are presented in Table 6, Table 7 and Table 8, considering a risk of 50%, as well as the costs of maintenance actions. The conditions applicable to a new policyholder of this type are as follows: (i) any repairs for accidental damage are excluded; (ii) it is not possible to acquire the insurance product if the degradation condition is D or higher, and if previous maintenance actions have not been carried out; (iii) the total replacement occurs when the coating reaches the condition D or higher, as established in the maintenance contract; (iv) light maintenance action occurs when the coating reaches degradation condition C, as defined in the maintenance contract; (v) the cleaning operation takes place when the coating reaches degradation condition B, as established in the maintenance contract; (vi) the insurance policies studied provide coverage for the risk of the ETICS requiring maintenance action earlier than the adopted maintenance plan and are applicable for coatings up to 40 years old; and finally, (vii) the value of the premium to be paid to the insurer must be established according to the age of the coating.

For the development of the insurance policy, several scenarios were studied for the three maintenance plans (MS1, MS2, MS3), with different insurance underwriting times and policy duration, to face the risk associated with the ETICS’s age at the time of insurance purchase. As a result, the values for acquiring an insurance product for ETICS at the ages of 5, 10, 20, and 30 years, with policy durations of 5 and 10 years, were calculated. It is also assumed that the maintenance plan is contracted for the same period as the duration of the insurance. The summary of the calculated values can be found in

Table 10. Insurance policies for ETICS.

Insurance Start Year	Policy Duration (Years)	Maintenance Plan	VAL Maintenance Plan (€/m2)	Premium with Profit Margin (€/m2/Year)	Premium for a Façade with 77.35 m2 (€/Year)	Condominium Premium (€/Year)	Cost of the Mainentenance Plan (€/m2/Year)	Cost of the Maintenance Plan for a Façade with 77.35 m2 (€/Year)
5	5	low-cost	1.9585	1.822	140.90	14.09	0.395	30.53
10	5	low-cost	1.9189	8.594	664.77	66.48	0.387	29.91
20	5	low-cost	1.9585	1.771	137.01	13.70	0.395	30.53
30	5	low-cost	89.4283	0.444	34.35	3.43	18.023	1394.11
5	10	low-cost	3.6914	3.905	302.07	30.21	0.374	28.96
10	10	low-cost	86.0022	0.218	16.89	1.69	8.722	674.64
20	10	low-cost	3.6914	2.591	200.40	20.04	0.374	28.96
30	10	low-cost	2.7374	0.689	53.27	5.33	0.278	21.47
5	5	standard	54.4519	1.390	107.53	10.75	10.974	848.85
10	5	standard	1.9189	4.380	338.79	33.88	0.387	29.91
20	5	standard	1.9585	5.226	404.21	40.42	0.395	30.53
30	5	standard	93.1119	2.601	201.21	20.12	18.766	1451.53
5	10	standard	56.1848	1.990	153.95	15.39	5.698	440.74
10	10	standard	52.1711	1.039	80.38	8.04	5.291	409.25
20	10	standard	3.6914	4.187	323.88	32.39	0.374	28.96
30	10	standard	94.8805	2.199	170.10	17.01	9.622	744.28
5	5	superior	28.2957	2.130	164.78	16.48	5.703	440.82
10	5	superior	54.4123	1.209	93.49	9.35	10.966	847.69
20	5	superior	52.5693	5.522	427.17	42.72	10.595	818.98
30	5	superior	0.9689	5.240	405.35	40.53	0.195	15.10
5	10	superior	77.4319	0.549	42.48	4.25	7.853	607.01
10	10	superior	55.2872	1.523	117.80	11.78	5.607	433.41
20	10	superior	104.6970	1.518	117.44	11.74	10.618	820.76
30	10	superior	2.7374	3.742	289.48	28.95	0.278	21.46

.

Of the calculations carried out for the moments listed, the most relevant are highlighted, namely the moments of underwriting that lead to a higher value of the insurance premium to be paid by the policyholder, those in which the value of the insurance exceeds the annualized cost of the plan of maintenance, the minimum amount of insurance payable, and the maximum annualized cost of the maintenance plan according to the moment of insurance subscription. The values presented in the table were calculated according to Equations (5) and (6), where a discount rate of 4%, a sector inflation rate (i_s) of 1.9%, and a general inflation rate (i_g) of 1.8% [33] are adopted. A 20% profit margin is also considered in the calculation of the insurance premium, which can change according to the insurer goals concerning the insurance product and the target market.

Overall, the standard plan (MS2) is apparently the most affordable to ensure a policy, as it has the lowest maximum insurance value, at 5.226 €/m²/year, compared to the low-cost plan (MS1) and the superior plan (MS3), in which the maximum amount of insurance payable is 8.594 €/m²/year and 5.522 €/m²/year, respectively. All these values are for policies with a duration of 5 years. In turn, the lowest minimum amount payable is for the low-cost plan, with a value of 0.218 €/m²/year, for insurance underwriting at 10 years of age of the ETICS and a policy duration of 10 years. An analysis of the scenarios studied also reveals a preference for underwriting an insurance policy with a duration of 10 years, since the annual amount of insurance payable is lower, regardless of the maintenance plan implemented in the building’s coating. In general, due to the ETICS’s subscription age, the adoption of a certain maintenance plan may be more advantageous. However, in average terms, in the analysed scenarios, the low-cost plan is the one with the lowest insurance premium values and the standard plan is the one with higher premiums. The low-cost plan is the one with the highest number of moments in which the insurance premium payable exceeds the annualized cost of the maintenance plan.

In terms of maintenance contracts, the maximum annualized cost of maintenance is reached in the low-cost, with an insurance subscription value of 18.023 €/m²/year, starting at age 30 and lasting 5 years. Similar to the values of insurance premiums, the highest annualized maintenance costs occur when contracting for a period of 5 years. In average terms, the low-cost plan is the one with the lowest annualized maintenance cost values, in line with the values presented in the previous section. In turn, the superior plan has the highest annualized maintenance costs.

The insurance policies in Table 10 must be calculated according to the age of the coating and are applicable for a façade with ages below 40 years, excluding repairs due to accidental damage or vandalism, applying the following specific conditions according to the policy adopted:

• Low-cost policy—Covers the risk of ETICS reaching condition D before the time specified in the plan, with compensation up to the amount of two total replacements;
• Standard policy—Covers the risk of ETICS reaching condition C and D before the time foreseen for the action in the plan, with indemnity in the amount of two light maintenance actions and one total replacement;
• Superior policy—Covers the risk of ETICS reaching condition B, C, and D before the time provided for in the plan, with indemnity in the amount of four cleaning operations and two light maintenance actions.

In order to illustrate the calculation of the insurance premium applied, an example building was used, as shown in Figure 3. The studied facade of the building has a cladded area corresponding to 77.35 m². The building was inspected for the first time in 2016, when it was in a good degradation condition (S_w = 2%). The building construction date is 2011 and consists of ten housing units (i.e., condominium with ten owners).

Considering the date of the building construction, it was assumed that the ETICS is 11 years old. Based on this assumption, an attempt was made to select the most suitable insurance policy and the respective maintenance plan to be adopted by the owners. From the calculations presented in Table 10, the low-cost plan is the one with the lowest premium per joint owner, 1.69 €/year per owner, for a duration of 10 years. However, the selection of the standard plan with a policy at 10 years and duration of 5 years leads to the lowest total annual cost per owner of 36.87 €/year per fraction, i.e., considering the insurance policy and maintenance contract. In case the owners want more favourable conditions over the years (lower degradation conditions), the superior plan is the most suitable solution. The total annual cost per unit owner will be 55.13 €/year, for a duration of 10 years.

In general, this case study reveals that the choice of the best insurance product must be carried out taking into account the age of the facade cladding, the maintenance plan best suited to the owners’ requirements, and the intended duration of the policy of insurance. From the analyses carried out, it appears that, regardless of the year of insurance subscription, the options for 10-year policies are in most cases the best option in economic terms.

6. Conclusions

This study defined an insurance policy model applicable to ETICS using stochastic maintenance models, based on the condition of the element. This investigation intends to fill the gap in terms of insurance related to the anticipated degradation of buildings, namely in terms of the surrounding elements. To promote the viability of such insurance, an application universe of around 3270 buildings in Portugal was estimated.

This study proposes the definition of real insurance policies, considering the risk associated with the failure of ETICS (and can be adaptable to other building envelope elements), as well as the most probable failure time and the costs associated with that failure. These insurance policies are deemed to significantly enhance the market for outsourcing maintenance, which has been limited due to lack of knowledge in terms of risk and costs and also due to the absence of risk mitigation strategies (insurances) for providers of maintenance services.

The design of this insurance assumes its association with a maintenance contract, since the policy intends to bear the risk of a maintenance action being necessary sooner. In this sense, three maintenance plans were developed for a time horizon of 40 years. The selection of the best plan varies according to the criteria of the owner or manager of the building, but the solution that presents the best cost-benefit ratio (annualized maintenance cost/efficiency index) is the low-cost plan with an index of 0.21.

The study of the different insurance policies applied to the ETICS, depending on the three maintenance plans, reveals that the standard plan is the most economical to ensure a policy, considering only the maximum amount of insurance payable. The minimum amount payable is in the low-cost plan, with a value of 0.218 €/m²/year, for insurance underwriting at 10 years of age of the ETICS and a policy duration of 10 years. An analysis in average terms for all the underwriting moments studied shows that the low-cost plan is the one with the lowest insurance premium values. Regardless of the maintenance plan implemented in the building, subscribing a 10-year policy is almost always more advantageous as it leads to lower insurance premiums.

Through application to the case study, for a 11-year-old ETICS, the low-cost plan is the most economical solution, with an insurance premium per owner of 1.69 €/year, for a 10-year subscription. However, the selection of the standard plan with a policy at 10 years and duration of 5 years leads to the lowest total annual cost per owner of 36.87 €/year per fraction (including annualized maintenance costs and insurance policy cost). In summary, the selection of the best insurance product must consider the age of the coating, the maintenance plan chosen by the owner, and the intended duration of the insurance policy, taking into account that a 10-year subscription is, generally, the most economical option.

This study and the insurance policies proposed present some advantages, namely: (i) changing the nature of the risk and transferring increased risks to the insurance company; and (ii) increasing the patrimonial value of the asset, through the adoption of adequate and timely maintenance actions, reducing the risk of failure of the façades and reducing the cost of urgent and unpredictable maintenance actions. The acquisition of this product by a residential condominium provides a way of share the costs of the maintenance contract for the buildings’ façades, sharing the risks by the households, resulting in a lower price for the insurance premium. The major limitation of this insurance product is the lack of funds by the owners to have a maintenance plan and insurance to cover the risk of anticipating the actions. However, not purchasing this type of product entails higher costs in the long term, with the deterioration of the facades (with an increase in Municipal taxes) and the need for costlier unexpected and urgent maintenance actions. Another barrier for the application of this product can be the long-term profits of the insurer. Nevertheless, this study provides an accurate tool to estimate the risk margins, which can lead to more competitive insurance premium leading to larger number of clients in the portfolio, thus reducing the risks assumed by the insurance company.

In future studies, the insurance policies for condition-based maintenance plans will consider the combination of various elements present on the facade, carrying out maintenance actions opportunistically, and reducing the fixed costs of actions (e.g., scaffolding).