A number of factors have coincided to mean that rebuilding costs have hit record highs and the risk of underinsurance is now greater than ever.

The Building Cost Information Service (BCIS) General Building Cost Index is now sitting at 8.3% after peaking at over 10.0% during 2022. Policyholders cannot ignore the cumulative effect that 2 years of unprecedented rebuild cost inflation has had on the adequacy of sums insured.

Their sums insured have to be adequate for their businesses to survive a major loss. Underinsurance has always been an issue for insurers and policyholders. The ABI suggests 20% of household policies are underinsured whereas various professional valuation services suggest that figure rises to 60-70% of commercial risks due to the complexities of commercial covers.

According to the Royal Institution of Chartered Surveyors, construction materials costs have hit a 40 year high. Material shortages continue to create problems with materials costs averaging over 20% inflation. Some materials have seen huge increases such as imported timber (+70%) and structural steel sections (+60%) due to a global increase in construction and supply issues caused by Covid.

Labour costs continue to rise due to a shortage of labour in the UK construction sector and driver shortages, coupled with increased fuel prices, means it costs a lot more to distribute building materials, further driving prices up. Rising energy costs have and will continue to push up the costs of producing materials which will be passed on to the customer.

Lifestyle changes post pandemic and continued home working has caused people to reassess their housing needs, resulting in a substantial increase in demand for building repairs and improvements.

Policyholders will need to budget for buying more insurance cover if they are to remain properly insured. As well as index linking increases there will be general premium increases which insurers need to remain viable.

More recently, professional revaluations are highlighting that the shortage of materials and labour means that reinstating properties is not only more expensive but is now taking longer.

Extended rebuilding periods means Business Interruption indemnity periods may need to be extended which will mean additional cover has to be purchased. For peace of mind and ensure you are adequately covered, contact us today.