UK Businesses Face Risk of Underinsurance as Construction Costs Reach Record Highs

Continuing high levels of inflation in construction costs in the UK and globally, risk leaving homes and businesses underinsured in the event of fire or another catastrophic event, warned Chaucer, the specialty re/insurance group.

Many businesses have tried to save money by not increasing the amount covered by their property even as construction costs have soared, according to Chance Gilliland, head of Global Property Delegated Authorities at Chaucer.

In the event of a fire or other catastrophe, that could mean they have insufficient funds to rebuild or replace the damaged property, he said, explaining that underinsurance could leave insureds tens or hundreds of thousands of pounds short of the actual rebuild costs of their properties.

The UK Construction Material Price Index increased by 10.4% in the past year, which has been driven by increases in the price of insulating materials (41%), gravels and sands (20%) and concrete products (16%) in the past 12 months.

As rebuild costs are 10.4% higher than a year ago, an average property insurance policy set to cover £1 million ($1.2 million) could now be short of covering the full rebuild value, meaning the policyholder is now underinsured, Chaucer cautioned.

A combination of soaring energy prices following the invasion of Ukraine and a 6% increase in worker wages in the past year (according to the UK Office for National Statistics), is pressuring construction companies to pass costs onto customers, Chaucer said.

“Soaring construction costs driven by scarcity of raw materials, supply chain disruption and higher labour costs could leave UK businesses underinsured and at risk of excess costs,” commented Gilliland.

“It’s crucial that policyholders review their coverage to ensure that this is sufficient. Otherwise, they could find themselves in the position of having to pay for repairs out of pocket,” he said.

Topics Construction