Raw material shortages and rising energy costs are causing building costs to skyrocket, potentially leaving business out of pocket
Rising construction costs risk leaving homes and businesses underinsured if properties suffer damage from natural catastrophes, such as storms or floods, warns Chaucer, the leading specialty (re)insurance group.
Escalating construction costs mean that many existing policies are now far less likely to be sufficient to rebuild properties damaged by natural or man-made events.
In the UK, the Construction Material Price Index increased by 26.4% in just one year. This has been driven by increases in concrete reinforcing bars (58.2%), fabricated structural steel, which has gone up 46.3% in a year and pre-cast concrete products (up 28.3%).
This trend has been observed globally, for example, the United States has seen costs jump by 19.2% in twelve months, the largest spike in more than 50 years.
Geopolitics exerts further strain
The crisis in Ukraine has contributed to greater levels of volatility in global energy costs, pushing up the processing and freighting costs of raw materials. Furthermore, sanctions against Russia have made raw materials more difficult to source, which has also served to push up prices.
Based on a rise of 25% in rebuilding costs, if a property that was insured against a value of £1m needed to be rebuilt entirely, it could now cost £1.25m. Therefore, policyholders would need to either finance the £250k difference themselves or pay for more coverage.
Chance Gilliland, Head of Global Property Delegated Authorities at Chaucer says: “Rapid inflation in building costs risks creating an insurance gap. Those based around coastal regions, which are more exposed to extreme weather are at greatest risk.”
“Policyholders need to review their coverage to ensure that they will not be left underinsured should their homes and business premises suffers damage.”