Recent findings from the National Association of Home Builders (NAHB) confirmed that construction costs have surged over the past year. This rise in construction costs is directly tied to soaring building material expenses—namely, the price of lumber. According to the NAHB, current lumber costs are up 340% from 2020. What’s more, lumber prices have already risen by an additional 67% since the beginning of 2021.
There are several reasons for these higher expenses. Specifically, the COVID-19 pandemic and the presence of historically low interest rates have contributed to a rise in home purchases and renovation projects that has elevated the demand for building materials. This increase in demand has been met with supply shortages throughout the construction industry. In the midst of greater demand and lower supply, building material prices have subsequently soared.
Unfortunately, this surge in costs could pose coverage consequences for insureds across the country. After all, increased building material and construction prices could lead to higher property building insurance claim expenses, seeing as it would currently cost more to repair or rebuild a structure following a loss.
As a result, property owners could discover that their existing policy limits and coverage features no longer offer adequate protection, leaving them financially vulnerable in the event of a loss. Further, property owners’ insurance carriers may increase policyholders’ premium costs to account for the risk of elevated claim expenses.
In light of these ongoing cost concerns, it’s important for property owners to respond accordingly. As such, consider taking the following measures:
Review your policy. Be sure you fully understand your property insurance policy. Take note of whether you have replacement cost coverage (which can offer compensation for the cost of replacing or rebuilding your building as new) or actual cash value coverage (which can offer compensation for the depreciated value of your home). Ensure your policy provides a correct replacement cost or overall value for your building.
Consider coverage adjustments. Consult a trusted insurance professional to help you determine whether you need to adjust your policy to have sufficient coverage in the event of a loss. This may entail changing your policy’s valuation method, increasing your current limits, obtaining specialized coverage, or implementing a policy endorsement.
Communicate with your insurance carrier. Lastly, make sure to inform your insurance agent and your insurance carrier whenever you make renovations or implement other improvements in your building.