Inflation in UK and global construction costs risks leaving businesses underinsured
Rising construction costs in the UK and globally 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 25% in just one year. This has been driven by increases in concrete reinforcing bars (62%), fabricated structural steel, which has gone up 46% in a year and particle boards (up 34%).
This trend has been observed globally, for example, the United States has seen costs jump by 18% in twelve months, the largest spike since 1970**.
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.
* For all building
**US Census Bureau