We printed this Q&A column in the June 10, 2021 edition of The Lewiston Tribune.
A: Yes, the dramatic rise in building material cost translates into much higher re-construction costs after a property loss. A study by Verisk shows that total reconstruction costs, including materials and retail labor were up 8.12% in the 12 months ending April 2021. Idaho is among the states with the biggest average increase of 11.93%! The increases are driven by COVID pandemic interruptions in production and broken supply chains, and fueled by increased construction demand.
Effect on insurance: Property policies including homeowners, apartments and commercial buildings are typically insured for “Replacement Cost”. Replacement Cost (RC) mirrors new construction costs because after a claim (like a fire) the reconstruction is using new materials and current labor costs.
Review Property Limits: Insurance companies are increasing Homeowners Policy dwelling coverage and Property Policy limits by larger inflation factors at policy renewals. Prepare for the shock of larger than expected premium increases to cover the higher limits of insurance. All property owners should review their policies to see if the current limits or the limits being offered at renewal are high enough to rebuilt the structure in case of a total fire loss. Ultimately, the insured is responsible for the limit of insurance selected so you don’t want to be underinsured.
Home Owners Take Note: At American Insurance our typical Homeowners Insurance policy contains an endorsement that agrees to pay more than your dwelling limit if you have originally chosen to insure your dwelling for full RC originally at the time of application. The additional limit may be anywhere between 15% and 50% depending on the insurance company. So, a temporary rise in re-construction costs may not expose you to being underinsured.
CONTACT US: Get a free property review at American Insurance. Our experienced local agents will help you determine replacement cost limits. We can quote multiple companies with your one request to find you the best rates available right now for your property coverage. Call 208-746-9646, stop-in, or email Quote [at] Am-Ins [dot] com for an appointment.