Inflation has been a topic at the forefront of developing news. According to the U.S. Bureau of Labor Statistics, the Consumer Price Index for All Urban Consumers rose to 7% in 2021.

Insurance Companies are experiencing the effects of inflation as well. They now require additional funds to repair or replace buildings, equipment, and/or autos during claims. This has to do with several market factors involved in settling claims:

Factors Contributing to Higher Repair/Replacement Costs

1. Higher Building Material Costs, Higher Repair Costs: Between 2020 and 2021, the cost of building materials rose 11.9%. Lumber rose a staggering 42% over the past year¹. As a result, home repair costs are up nearly 15% overall.
2. Skilled Labor Shortages: Roughly 60% of builders surveyed² report a skilled labor shortage in the home-building industry, which is driving up labor costs involving new construction.
3. Supply Chain Issues: Shortages on microchips and other critical auto parts have impacted the cost to repair or replace a vehicle after an accident. New car prices rose 10.6% between Oct. 2020 and Oct. 2021, while used car prices jumped up nearly 32%.³

Your Responsibility to Confirm Correct Values

Many people are unaware that it is their responsibility to confirm the value of their property is correct, not the insurance company’s. If property, which including dwellings, outbuildings, and farm equipment, is under-insured (by more than 20% for most policies) at the time of a claim, most policies include a "co-insurance" clause, in which the percentage at which you were under-insured is calculated and deducted from the claim payments.

Keeping up with correct property values becomes a more urgent concern during periods of high inflation because rapidly rising values can increase the likelihood that the co-insurance clause could get applied.

As if that wasn’t complicated enough, the insured value of your property can be different depending on if your insurance policy has a Replacement Cost settlement (which does not depreciate your home or property’s value based on age) or Actual Cash Value settlement (which applies depreciation based on age).

Our Agency can assist in correctly determining the insurance value of your home, outbuildings, and other property to help minimize the chance of being under-insured. Reach out to us today to set up your policy review.

Sources:

1. CoreLogic Quarterly Construction Insights (Q2 2021)
2. National Association of Home Builders. “Building Material Prices: Large Increases Year to Date” (Sept. 2021)
3. CNN Business. “’This is a crisis now.’ Biden official pleads with Congress to immediately address computer chip shortage” (Dec. 2021)