Since the onset of the pandemic, there’s been a surge in building materials costs – impacting construction and building prices. A combination of increased home projects, a shortage of construction workers, and mill closings have led to building material shortages, creating obstacles for contractors. While these factors have significantly impacted new building construction projects, it’s also extended to building repairs and rebuilds – posing a threat to property insurance policyholders. These rising costs can have a significant impact on claims and coverage in the event of property being damaged or completely destroyed.
Building Materials Costs on the Rise
Amid lumber tariffs, production shutdowns, and high demand, materials costs and availability have constantly changed since January 2020. Although lumber costs have declined recently, they’re still up more than 80% since before the pandemic. Steel prices are also up by 215% in addition to other raw materials. These staggering changes have resulted in delays to the delivery of materials like lumber, steel, and iron products and, ultimately, construction projects.
What Changes Mean for Insurance Policyholders
In the event of damages or a complete loss, property insurance covers replacement costs. Property insurance costs typically correspond with construction costs. As the pricing associated with manual labor and materials increases, the prices of repairs and rebuilds follow suit, affecting quotes and premiums. Whether a policyholder requires repairs or a complete rebuild after a loss, they may face expensive consequences due to being underinsured. Home and business owners could discover that due to changes in construction rates, their current policy limits and coverage offer inadequate coverage of their replacement costs. This can result in them unexpectedly dealing with out-of-pocket expenses.
Preparing Homeowners and Business Owners for the Unexpected
To stay prepared for the unexpected, property insurance holders need to ensure that they update their coverage limits to accommodate construction inflation. Now is the ideal time for policyholders to review their policies and make sure they have the correct replacement and repair cost coverage in place. If necessary, they should consider making adjustments to secure additional coverage. This might involve increasing current limits or changing the policy’s valuation method.
How Agents Can Support Policyholders
A lot of uncertainty surrounds the future costs of building materials and labor. As the construction industry continues to fluctuate, policyholders must do their due diligence and stay aware of what their current policies cover. Insurance providers and agents can do their part by contacting their customers and offering them the opportunity to review their existing policies, limits, and coverages to ensure adequate protection is in place. Giving thoughtful service to your insureds in this way will aid in building trust and a stronger relationship. Those strong relationships are especially important when in a hard insurance market where premium increases are sure to send policyholders shopping for quotes and possibly new agents during renewal periods.
Quaker Special Risk has the broadest binding authority in the Northeast, giving us an ability to provide options for property coverage, including coastal and inland marine. If your policyholders need additional coverage, contact us for a quote.