The rising costs of construction materials is creating serious concerns for Commercial Property Owners within the property insurance market. The main driver of increasing costs stems from the Covid-19 pandemic, which has affected the market supply of building materials thereby causing a shortage of materials, extended time to obtain materials, and the overall increases in construction prices. Lumber prices in particular increased by 73% in the past year, while other essential materials like cement, copper, aluminum, iron and steel all continue to experience inflation. The pandemic has also brought challenges within the construction industry with a lack of available workers and limited capacity to undertake new project endeavors.
Property owners are recognizing these concerns not only with their normal operations in maintaining, renovating or developing properties, but especially when a property has been damaged due to a fire, windstorm, hail or other calamities. There has been a multitude of widespread property losses over the past year from the unprecedented Texas Winter Freeze occurring in February 2021, Western wildfires focused across California, Colorado, Oregon and Washington, the Tennessee tornado outbreaks, and seven tropical events that have impacted the U.S. to date — all of which have compounded the issue of limited resources and increased pricing.
Due to the impacts of the lack of building materials, increased pricing of building materials, lack of labor and costly weather events, owners are faced with increased property insurance premiums with the same limit of insurance. Due to the current costs to repair property, it is critically important to ensure property owners have appropriate Replacement Cost limits under their insurance policies and are not underinsured.
It is recommended that property owners work with their insurance broker to determine an appropriate limit for their property insurance, taking into consideration the cost of construction. In addition, property owners need to have established agreements with contractors prior to a loss that they obtain priority service following a loss with agreed reconstruction pricing. This will help property owners during the insurance claims process. Working with your broker to advocate on your behalf during the claims process will help return the best results.
Franklin Street Insurance wants to ensure commercial property owners are well protected. Our experienced and dedicated team is here to answer any insurance-related questions.
Eric Smith is Director of Claims and Risk Management with Franklin Street’s Insurance Services Division. For the latest in expert insights, visit the Franklin Street Information Exchange.