Inflated building material expenses have caused construction costs to surge over the past year. Several factors have influenced these higher costs, including:

• a global pandemic that forced many manufacturers to shut down production and caused a supply shortage
• historically low interest rates that influenced property purchasing and drove the demand for building materials
• numerous catastrophic loss events (e.g., tornadoes, wildfires, flooding, ice storms, hurricanes) that increased the need for construction supplies

Higher building material and construction prices will influence an increase in property insurance claim expenses. As property repairs/rebuilds cost more, your current coverage may not be sufficient and leave you financially vulnerable.

How does construction pricing affect your insurance?

In response to the construction supply and demand, many carriers have implemented property rate increases and total insurable value (TIV) adjustments. Building price increases could cause you to suffer coinsurance penalties for under-reporting/under-insuring your property’s value. Also, delays in labor and material shortages could mean interruptions in your repairs/replacements with a potential loss of income.

As a result, you could discover that your business’ existing policy limits and coverage no longer offer adequate protection. In light of these ongoing cost concerns, it is important for you to be proactive.

Consider taking the following actions:

Review your policies

• Inspect and make sure you fully understand your property insurance policy. Contact your insurance broker with any questions or concerns you may have.
• Analyze your business owner policy’s limitations regarding business income and extra expense insurance.
• Appraise your current disaster recovery plan. Make adjustments and apply necessary contingencies as construction could take much longer. Include additional backup plans to continue operations through a longer recovery period.
• Consult a trusted insurance expert to help you determine if your policy has sufficient coverage in the event of a loss. This may require you to change your policy’s valuation method, increase your current limits, obtain specialized coverage or implement a policy endorsement.
• Inform your insurance carrier whenever you conduct renovations or implement other improvements to your property.
• Review your current policy and contact your risk management advisor to make sure your business is covered.

• Remove coinsurance provisions. Request an agreed value on your property and never accept a 100% coinsurance as it increases your risk for an errors & omissions (E&O) claim.
• Analyze and make adjustments to your business income and extra expense insurance. This coverage provides for your income and covered expenses while your property is repaired. Recent construction interruptions may require alterations to your policy.
• As construction delays could cost you money, modify any business owner policy limitations from a 12-month option to a 24-month option.

Communicate

• Inform your insurance carrier whenever you conduct renovations or implement other improvements to your property.
• Review your current policy and contact your risk management advisor to make sure your business is covered.

We’re Here to Help

This rise in construction costs could affect your business. Your current policy may not provide adequate coverage to repair/replace in a case of a loss and leave you financially vulnerable. Connect with a member of our team to learn about how to make sure your business is covered.