There have been many headlines about supply chain issues – from a lack of HGV drivers to empty shelves in supermarkets. This also extends to the construction industry with a knock-on effect on building sums insured. As a result, many businesses and homeowners could be unknowingly stumbling into a storm which could leave them out of pocket.
What is happening?
The challenges seen elsewhere are being replicated in the construction industry with some of the same factors driving up prices. Raw materials such as steel and timber are in short supply and have led to an annual increase of 10.2% over the last year. This has been compounded by labour shortages in construction reaching a 20 year high with some 33,000 vacancies in the spring of this year alone. The is unlikely to be resolved quickly according to the Confederation of British Industry (CBI) who are predicting that this situation could last for as long as two years.
What does this mean for Sums Insured?
The construction industry is volatile and with such significant inflationary pressures sums insured should be reassessed. Not least as underinsurance is a risk which can hit a firm’s balance sheet should there be a shortfall in cover. Or, in the case of homeowners, either family or an individual’s savings could be drained.
Underinsurance - The rise in building materials could mean both commercial and private properties are underinsured. This is because it is the rebuild value not the market value which is important for underwriting purposes.
What should you do?
We recommend up-to-date professional valuations are completed by a RICS qualified surveyor to ensure sums insured are accurate. We can arrange these including remote desktop valuations. The sum insured should also include other costs such as architect’s and planning fees and where required VAT.
You can find out more about the effects of an increase in construction costs here. If you need help or advice about any of the issues raised in this article, please contact us. We have also written another article on the impact of construction costs on insurance - you can view by click here.