It goes without saying that all eyes are on inflation and the economy at the moment with issues surrounding building material supply, shortages of labour and lorry drivers following COVID-19 constantly in the headlines.

With everything starting to become much more expensive for insurers settling claims, these costs need to be passed on somewhere, and that’s to the policyholder. We have seen a steady increase in commercial property premiums from all insurers over the last few months, which is likely to continue.

Various insurers and trade bodies have commented on the situation:

  • During 2021 building material costs increased, but there is now also noticeable increasing pressure on the cost of labour.
  • Both material and labour costs are affected by the usual market forces – demand and availability and whilst demand for both new building works and repairs is still very high, resources are harder to source, and more expensive throughout the UK.
  • Inflation, which is measured by the Consumer Price Index (CPI), rose by 5.1% in the 12 months to November 2021 – the highest level in over a decade according to figures from the Office for National Statistics.
  • The BCIS Materials Cost Index revealed the overall cost of materials in the index rose by 20.3% in the 12 months to November 2021.
  • Construction material costs in the UK have also reached a 40 year high based on the annual growth of the index.

Maintaining an adequate sums insured

For insurance to fulfil its objectives, the cover you purchase needs to accurately reflect your requirements. Insuring assets for incorrect values, or setting cover limits too low, is likely to result in underinsurance with claims payments reduced in proportion to the amount of underinsurance.

The problem for many businesses is that getting the right sums insured is often complex and the values in question can change quickly, particularly considering the steep increase in inflation and the cost of materials and labour.

What is index linking?

Many, but not all, insurers help by ‘index linking’ your policy. This simply means that your sum insured is altered automatically whenever there is a change in the rebuilding cost. Usually there is no charge for any increase between renewal dates. Index linking can work properly only if your sum insured is right to start with.

If you’re a GPS client please contact us should you have any questions regarding your sums insured.

If you would like a review of your existing insurance arrangements please contact us on 020 3907 7866.