Keven Moore: Rising cost of building materials is changing insurance coverage, how it may affect you

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From the global COVID-19 pandemic to recent trade wars, 2020 has been an unusual year for all of us, including many businesses.

If you have recently started a home renovation or construction project, you have more than likely noticed that lumber prices have skyrocketed in 2020 and 2021. Subsequently, the coronavirus pandemic has driven up the price of many popular building materials, with some seeing their highest price. levels in years.

According to the Bureau of Labor Statistics, in the April 2021 report, more than half of April’s rise in the index of processed goods for intermediate demand can be attributed to an 18.4% rise in the prices of steel products. Indexes for industrial chemicals, resins and plastic materials, meats, plastic products and lumber also rose. All of this translates into a higher price tag for a variety of home improvement projects.

(Click to enlarge the graphic. Fixr.com graphic)

The recent discoveries of National Association of Home Builders (NAHB) confirmed that household construction costs have increased over the past year. This increase in construction costs is directly linked to the surge in expenditure on construction materials, namely the price of wood. According to the NAHB, current timber costs are up 340% compared to 2020. Additionally, timber prices have already increased an additional 67% since the start 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 an increase in home purchases and renovation projects, thereby increasing the demand for building materials.

Factories closed in the spring due to lockdowns and social distancing measures enacted by state and local governments. When prices fell between March and April 2020 due to the COVID-19 pandemic, factories anticipated that housing would be negatively affected and therefore anticipated a sharp drop in demand. As a result, plants that remained operational significantly reduced their capacity utilization.

According to the NAHB, producers had not anticipated the massive uptick in demand from do-it-yourselfers (DIY) and big-box retailers during the pandemic. The accommodation weathered the storm much better than expected. But DIY demand from cut homeowners has far exceeded expectations as states reopen and construction demand then far exceeded sawmill projections.

Also contributing to the equations, there were a total of 63 catastrophic loss events that occurred in 2020, including tornadoes in the Midwest, wildfires in the West, and hurricanes in the Southeast. The demand for construction materials and labor created by these catastrophic losses, combined with reduced capacity due to COVID-19, has resulted in a significant increase in cost estimates.

Keven Moore works in risk management services. He holds a bachelor’s degree from the University of Kentucky, a master’s degree from Eastern Kentucky University, and more than 25 years of experience in the security and insurance industry. He is also an expert witness. He lives in Lexington with his family and works both in Lexington and Northern Kentucky. Keven can be reached at [email protected]

The combination of all these factors has caused an upheaval in the usual supply/demand balance. Nevertheless, this increase in demand has been accompanied by supply shortages throughout the construction industry. Against a backdrop of rising demand and falling supply, building material prices subsequently soared.

As a result, 47% of homebuilders surveyed by NAHB say they are building price escalation clauses into sales and construction contracts to help deal with skyrocketing lumber costs. National Association of Home Builders Says Lumber Prices Are Rising added $36,000 to the average price of a new home since April 2020.

Unfortunately, this spike in costs could impact coverage for homeowners and businesses across the country. These rising costs of lumber and other building materials are affecting homeowners and business insurance premiums, because rebuilding costs are a factor in your insurance premiums, and most homeowners and business owners will notice increases in your annual premiums.

As a result, many may find that the limits and coverages of their existing policies no longer provide adequate protection, leaving them financially vulnerable in the event of a claim.

Additionally, insurance companies may increase policyholder premium costs to account for the risk of high claims expenses. It is essential to understand the impact of the increase in the price of wood on industry-wide value insurance calculations in new policies and renewals, as proper valuation is extremely essential to ensure adequate cover in the event of loss.

Given these ongoing cost issues, owners like you need to respond accordingly. In this regard, consider taking the following measures:

Revise your policy. Make sure you understand your landlord’s insurance policy. Note whether you have replacement cost coverage (which may provide compensation for the cost of replacing or rebuilding your home as new) or actual cash value coverage (which may provide compensation for the depreciated value of your house). Make sure your policy provides the correct replacement cost or overall value for your home.

Consider coverage adjustments. Consult a trusted insurance professional to help you determine if you need to adjust your policy to ensure you have sufficient coverage in the event of a claim. This may involve changing the valuation method of your policy, increasing your current limits, obtaining specialized coverage or setting up a policy endorsement.

Contact your insurer. Finally, be sure to notify your home insurance company whenever you make renovations or implement other improvements to your home (for example, adding a new deck or renovating the bathroom). bath). Update your policy as needed.

If you were thinking of saying “too bad” and opting to retire and sell your home and replace it with an RV to take advantage of increases in the price of your home and to avoid increases in home insurance, think again. you. Since February 2020, before the start of the pandemic, wholesale prices for trailer trailers have increased by 54%. Wholesale motorhome prices increased by 47% over the same period. You’re just “empty” out of luck.

Be safe my friends

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