Inflation means that insurance rates are going up. At Craig and Leicht, we pride ourselves on being transparent and open with our community, and we want to explain why our rates are increasing.
As you know, the COVID-19 pandemic severely impacted the economy across multiple industries and led to sectoral inflation, the rise in prices occurring in different commercial sectors of a country. One of the industries hit the hardest was the construction sector.
Inflation reduces the purchasing power of a given unit of money. In 2021, the consumer price index reported a 7% national increase in the prices of goods and services and a 7.4% increase for the southern region of the US.
For general contractors, this was reflected in 2021 as an increase in price per square foot. Between April 2020 and February 2021, input costs increased by nearly 13%, while bid prices only increased by 0.5%.
Despite price increases for materials, supply chain issues, and decreases in staff, residential construction spending surged by 21% in 2020.
To compensate for the spike in costs, contractors’ rates have gone up. In turn, the insurance on older policies must be adjusted. Buildings that were written at $150K 15 years ago need to be updated to $200K.
While inflation may not affect the market value of a property, it can impact the insurance value. Market value is the estimated price of what a property is likely to sell for and includes the value of the land, market premium, and interior or exterior improvements. On the other hand, insurance value encompasses the property’s coverage amount compared to the cost of rebuilding it.
With the cost increases with construction, the coverage amounts must be increased to ensure the property can be adequately protected.
Contractors also face an increase in insurance rates because the cost of materials has gone up and they may need more people on the payroll to meet the growing demand for their services.
Clients in lower-risk segments with a clean claims history may experience 10-15% increases, but those in higher-risk areas with a poor claims history can face up to 50% increases. However, contractor coverages vary significantly based on numerous factors. It can be beneficial to work with a specialist broker to get the surplus lines coverage you need without breaking the bank.
That’s what we’re here for.
As underlying costs continue to trend upward, it’s a good idea to have an insurance broker who is on your side and can negotiate the best policy for your business. Specialty brokers who are experts in commercial lines insurance will make sure you only pay for what you actually need, so more money goes into your bank account at the end of the day.
At Craig and Leicht, we’ve been playing with insurance policies since we were in grade school. (No, seriously.) We’ve seen inflation before, and we know how to navigate price increases while still providing coverage that benefits the customer. We’ve worked with numerous construction clients, and we’re prepared to help you too.
Inflation doesn’t mean that your premiums have to skyrocket. Request a quote from Craig and Leicht today, and we’ll discuss your options and get a quote to you in as little as a few hours. Before committing to a significant price increase with your current insurance plan, you might as well see what other options are on the market.
If you have more questions about inflation and rate increases, we’re always here to chat whether you’re our client or not. We can talk you through what we think is the best path for your business and things you should prepare for in the future. Just give us a shout, and we’ll be in touch soon.