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Insurance effects of rising construction costs



This post is part of a series sponsored by The Hanover Insurance Group.

The rising cost of building materials is rapidly exceeding inflation, and the high demand for skilled workers and widespread global supply chain pressure are only contributing to rising costs, creating new risks for corporate customers who may need to rebuild after a property loss. Fortunately, independent agents are well positioned to educate their clients about important requirements and considerations for insurance coverage.

Rising costs

Total reconstruction costs increased on average 8.1% nationwide between January 2020 and January 2021, according to Verisk & # 39 ;s (ISO) latest 360Value quarterly cost update, which rises from the lowest levels of around 6 % to almost as much as 1

2%, depending on the permit. The cost of materials increased by 15.2%, and only timber costs increased by 85%.

At the same time, labor costs have increased by 3.8%, down from almost 8% in January, partly due to a shortage of workers. This is especially true for areas hard hit by winter and spring storms where materials and suitable skilled labor were in even higher demand. The shortage of materials has been exacerbated by pressure on the global supply chain. A new example came with the blockade of the Suez Canal, where many materials were delayed in reaching their destinations. These and other pressures on the international supply chain may affect the movement of equipment and materials for several months to come.

Insurance Considerations

Delays. With a shortage of workers and more expensive materials, many companies experience delays in recovery after losses, which risks their companies exceeding political constraints.

Unexpected costs. Given the increase in costs, the total costs of building, equipment and content compensation can be underestimated, which can lead to a company being underinsured or exposed to unwanted money insurance.

Income limits for companies: With material and work delays, it is conceivable that the recovery times will be extended, possibly beyond the period of damages and / or the extended period of damages, if applicable. This can in some cases lead to time limits for property policy being exceeded.

Recommendations

The right insurance solution can help protect customers from unexpected financial stress in the event of a loss. Independent agents can guide their clients toward coverage appropriate to their unique needs by taking the following steps:

  1. Initiating Proactive Talks: Half-time meetings with clients can help set up these important discussions long before renewals.
  2. Revaluation Cost Estimates: Agents can help clients revalue cost estimates for buildings, content, equipment and business interruptions to ensure appropriate coverage levels exist.
  3. Review policy terms: Agents can confirm that the correct insurance limits or sublimits are in place, so that customers are not underinsured and unnecessarily penalized by co-insurance claims.
  4. Emphasize Purchasing Options: With the lack of materials, agents can remind customers to back up plans in place to procure and obtain resources, materials, and equipment to help meet their commitments.

With curre Trends that are expected to continue for the foreseeable future, independent agents can provide their clients with valuable advice and counseling and introduce an insurance program that provides the right level of protection in the event of harmful property loss.

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