Building costs are rising - is your insurance keeping up?
Over the last year, rising inflation rates, labour shortages, and supply chain delays have driven building material and construction prices to hit a 20-year high.
Property owners are now being urged to review their current cover and building sum insured as soaring prices could see underinsurance quickly become a real threat for many.
Soaring construction prices have revealed a new set of challenges for property owners. For starters, the cost to renovate is likely to increase, as well as eligible repairs and rebuilds claimed under insurance for damaged or destroyed property.
Also, with construction costs rising so fast, many could find a significant discrepancy between what they are insuring their property for and the true cost of rebuilding - leaving them underinsured.
What is causing the spike in prices?
Several factors are driving the current increase in construction costs, including:
- Extensive shortage and backlog in production of supplies due to many manufacturing facilities closing during COVID-19 lockdowns
- Inflated prices of building materials (e.g., structural timber and steel) because of material shortages
- Shortage of skilled labour
- Current state infrastructure projects place stronger demand on materials and skilled labour
- Country-wide construction boom
- Increased demand for repair and maintenance jobs due to damage caused by recent extreme weather events
- Increased energy costs which have caused the production costs of some materials to increase
How will this impact my insurance?
When there is an increase in building material and construction prices, it drives a rise in property replacement values and rebuild costs. This means that if your property is severely damaged and you need to make a claim, the cost of rebuilding or repair work will likely be greater than what you calculated when you initially took out your policy.
If you underestimate your rebuild cost for your property and the sum insured falls short, you will be left to pay the difference between your claim-payout and the actual rebuild cost. This could be substantial considering the rapid increase in construction prices.
You will also need to consider that due to supply chain and delivery disruptions caused by the pandemic, there are now significant delays in project timelines. Therefore, property owners are encouraged to check their indemnity period on their policy to ensure they are still covered up until the job is completed.
How Coverforce can help
If you own a commercial property, these rising construction costs may impact your property's rebuild value and, therefore, your insurance premiums.
Our team of brokers can help review your current policy and ensure that the sum insured for your property's rebuild value still provides adequate cover at today's elevated construction prices. Get in touch with your local Coverforce Office today.
The information provided in this article is of a general nature only and has been prepared without taking into account your individual objectives, financial situation or needs. If you require advice that is tailored to your specific business or individual circumstances, please contact Coverforce directly
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