Underinsurance 'Made Worse' by Rising Reconstruction Costs

Underinsurance 'Made Worse' by Rising Reconstruction Costs

We have written previously about the massive shortfall in insurance cover for UK commercial properties. RebuildCostASSESSMENT.com recently estimated that buildings occupied by businesses are underinsured by £325 billion.

However, a sustained rise in construction costs this year is increasing the likelihood of significant underinsurance of buildings in the UK, which means shops, factories, warehouses and many other commercial buildings are woefully unprotected in the event of a loss or damage.

Recent data from RebuildCostASSESSMENT.com has highlighted how on average, buildings are covered for just 68% of the amount they should be in Britain. However, with rebuild costs rising rapidly, the current situation is likely to be even worse.

According to the Builders Merchants Federation (BMF), prices have risen by between 10% and 15% for products and materials this year. However, some products, such as timber, have seen prices go up by 50% and by as much as 100% for oriented strand board (OSB) and other sheet materials, which are all key housebuilding components.

The main factors at play here are pent up demand following Covid lockdowns and the re-starting of postponed building projects, as well as the impact of Brexit on imports from the EU.

The loss of around 1.5 million foreign workers throughout 2020 and 2021, many from construction, together with increased demand in other countries for construction materials, such as high Chinese demand for steel and extended lead times for virtually all materials, have combined to create a perfect storm around rebuilding costs.

View more information on how Brexit increased the risk of underinsurance

Indexation adjustments

Between July 2020 and July 2021, the cost of materials rose by 20%, according to the Office for National Statistics (ONS). The RICS’ BCIS general building cost index for the year to September 2021 was 8.8%, up from 3.6% for the year to March 2021.

It is unlikely that annual indexation will have allowed for these increases and, where a building sum insured is already on the low side, rising costs will be increasing the potential for underinsurance.

RebuildCostASSESSMENT.com has also found that the owners of as many as 580,000 homes across the UK worth over £1 million each are also significantly underinsured.

View more information on underinsurance and its dangers

Get an up-to-date valuation

‘Now is not the time for businesses and individuals to find out that their property is underinsured and that their insurance policy will not fully cover a loss’, says Towergate’s Commercial Director, Mark Brannon. ‘The only way to ensure that you and your business are not underinsured is to have an up-to-date valuation. Start by speaking to your Towergate adviser. They can arrange for a valuation from RebuildCostASSESSMENT.com for £126 including VAT’.

To make sure your property is not threatened by underinsurance and to get a valuation, contact your usual Towergate Adviser.