The rising costs of building don’t only increase the cost of construction They can also put business and property proprietors at risk of problems with insurance coverage.
It is said that 75% or more of the commercial companies are not insured by at least 40 percent. 1 This means that a business owner could not be compensated for an incident or result in a substantial financial burden. This is why regular property valuations are essential to ensure that adequate protection is in place the event an eventual loss.
“The cost for building materials and labor is increasing at unprecedented rates in large part due to the pandemic and supply chain issues,” explained Austin Koch, property portfolio director at The Hartford. “This can have a significant impact on insurance coverage adequacy as it’s not possible to fix or rebuild property at pre-pandemic values with today’s higher construction costs.”
What’s Driving the Building Cost Increase?
Since the pandemic began in the beginning, the price of the building materials has risen.
- Lumber prices per 1,000 feet of board were more than $1600 in May 2021. This was nearly four times higher than prior to the outbreak in January of 2020. 2
- Copper prices increased from $5,567 a ton at the beginning of January in 2020, to $10,221 per tonne in May 2021. 3
- Concrete and cement‘s Producer Price Index was 187.3 during July of 2021, compared with 176.7 at the beginning of January in 2020. 4
- Paint prices were up by 9% from the pre-COVID-19 cost. 5
- Ceramic tile costs declined in 2020, before rising 8.2 percent throughout the epidemic. 6
It’s not just the material costs that have increased. The cost of labor for construction also increased in 2021. According to the consulting business Rider Levett Bucknall’s Quarterly Cost Report, the construction cost index for the 2nd quarter in 2021 stood at 218.06. 7 This is 2.9 percentage higher than the 1st quarter – the biggest rise in the past twenty years. 8
The firm discovered a range of reasons for the rising costs in the construction industry.
- The labor shortage
- Demand
- Supply problems
- Intensification in frequency and severity of catastrophes 9
The Building Cost Increase Is Likely To Stay
The price for various building material has slowed since the peak in 2021. For instance, lumber was priced at $1,600 for 1000 board feet back in the month of May, to the low of $647 by September.
However, experts in the industry believe that costs will remain higher than they were in 2020 prior to the pandemic strikes. In 2020, the cost of lumber were at around $400 per 1000 boards feet. 10From supply chain shortages, to damages from storms and devastating catastrophes, numerous aspects are affecting the cost of the construction sector.
“Continued COVID-19 restrictions and the resulting delays in shipping and shortages of labor in the longshoreman and trucking sectors have had a lasting impact on the cost of construction materials. for construction material. The situation could continue to linger through 2022 or 2023.” explained Kenneth Travers, Risk Engineering director of the property department in The Hartford.
How Construction Cost Increases Impact Insurance
Since the cost of construction has been rising, it could mean that you don’t have enough insurance coverage. If a company suffers property damage, they might not be covered due to the cost of the materials and labor rising, Koch said.
“In addition to the difficulty in acquiring materials and durable goods used in construction, shortages of skilled and unskilled labor in the roofing, plumbing and electrical trades are compounding prices, which affects the insurance industry’s response on claims and losses,” Travers said.
Understanding Insurance To Value
The best method to be sure that your business is properly insured is to determine the value of your property. Koch suggests business owners carry out periodic assessments of the value of their property which is also known as insurance-to-value. This will give businesses and homeowners peace of mind in the event of an event of loss.
“If there’s a major loss, the coverage amounts in a business’ policy might not be enough to cover replacement costs at today’s prices,” Koch explained. “Having an accurate assessment of the complete cost to replace your insured property can be the difference between recovering quickly or incurring additional loss from delays in repairs.”
How The Hartford Can Help With Asset Valuation
Assessing your assets isn’t always an easy or quick procedure. When you think about the fluctuation in prices of construction and building materials this can make things more complicated. It is important to have your broker or agent partner with a reputable insurance company is crucial.
At The Hartford Our Risk Engineering specialists know the details of a variety of industries. They know the specific business risks and the challenges they confront. They are able to partner with your agent and broker to assist with the valuation of assets. They can provide valuable insights that will aid in establishing more precise replacement values.
“Our team of risk engineering professionals truly understand the construction industry and track replacement costs on a quarterly basis,” Travers explained. “During periods of greater price fluctuations, we have access to various industry-specific data sources which track materials and component pricing. The data we collect is used to assist us with the property replacement cost estimation of the facility of our client to ensure there’s enough insurance in place to protect the value.”