What’s the connection between building materials and buildings sum insured?
Recent information from our Partners at Rebuild Cost Assessment (RCA) reveals that on average buildings in the UK are as low as 68% of what they should be, it’s likely though that this figure is expected to be even worse due to the rising cost of materials in the building and construction sector.
Builders Merchants Federation (BMF) has stated that prices have risen by 10% to 15% in the last year for construction materials and products, the increase in timber product pricing has been well documented and is one of the areas where most people will have heard, whether that’s the materials themselves or the cost of freight to get them to the UK. In many cases, the cost of timber has increased by 50% and in the case of OSB and other similar sheet materials the costs have risen by 100%, these products are used consistently within the building sector.
Why have construction material costs increased?
The simple answer is the demand following Covid Lockdowns, with many building projects being placed on hold these postponed building projects have all restarted, the demand outstripping supplies, and of course the impact and effects of Brexit on the imports of goods from the EU.
Construction industry employees
Where have all the construction workers gone? With the loss of foreign workers in 2020 and 2021, many from construction and the demand in other countries for these construction materials has created a perfect storm for rebuilding costs, the demand for steel from the Chinese, the extended lead times of virtually all materials isn’t helping at all.
The year from July 2020 to 2021 saw materials cost rise by 20% according to the ONS (office for national statistics), The RICS (Royal Institute of Chartered Surveyors) general building costs index is forecasting 8.8% for the year to September 2021.
Policies that cover Buildings are index-linked with some having “Day One” uplift applied means that the sums insured, with these increases could still be on the low side exposing the potential to underinsurance.
Does this affect just buildings?
Of course not, if you have a business then your sums insured will be based on the “replacement” of the item, this could be a machine or a piece of equipment, for the very same reason as we have seen under buildings you potentially have the same problem with your machinery, plant or fixtures, and fittings.
Remember that you have to replace these items as if they were new, so that 5 turret reciprocating widget, whatever one of those is is likely to cost more to replace than it did two years ago or even 6 months ago, could this render your business underinsured in the event of a loss.
What about stock insurance?
Stock isn’t affected the same as Buildings or contents insurance, Stock insurance is based on what’s called indemnity basis of settlement, this means in simple terms if you paid £100 for your stock then in the event of a claim where the stock is lost you would be paid for the loss you have suffered, in this case, £100. Stock isn’t in most cases subject to Index Linking; it’s only the cost you paid.
What about your Home Buildings Insurance
Luckily many home buildings insurance policies provide blanket policies so the exposure to being underinsured is lessened. It is important though that you keep up to date on the correct amounts.
How to make sure your sums insured are correct.
Getting a rebuild survey carried out every few years is essential to ensure that you don’t become underinsured.
Working with our partners at Rebuild Cost Assessment the cost to maintain the correct amounts is very low at just £87.00, and whether your sums insured are right or wrong, adequate or inadequate having a reinstatement survey carried out provides an excellent benchmark to avoid having sums insured that is to low.
Speak to a member of our specialist team on 0330 058 0260 or contact us via our contact page