By now, you are most likely well aware of the rising costs of construction materials. These rising costs have been noted but many individuals and business owners may not be fully considering its implications on insurance policies. According to an Associated Builders and Contactors analysis, lumber prices have risen by 73% since April of 2020. Lumber isn't the only construction material to have taken such drastic increases. Prices of both lumber, Iron/steel products have increased by as much as 20-25%.
Recent findings from the National Association of Home Builders (NAHB) confirmed that household construction costs have surged over the past year. This rise in construction costs is directly tied to soaring building material expenses—namely, the price of lumber. According to the NAHB, current lumber costs are up 340% from 2020. What’s more, lumber prices have already risen by an additional 67% since the beginning of 2021.
There are several reasons for these higher expenses. Specifically, both the COVID-19 pandemic and the presence of historically low interest rates have contributed to a rise in home purchases and renovation projects—thus elevating the demand for building materials. Nevertheless, this increase in demand has been met with supply shortages throughout the construction industry. In the midst of greater demand and lower supply, building material prices have subsequently soared. However, we may be moving in the right direction as inventory shortages begin to ease and seeing some reduction in lumber prices over the last few weeks. At any rate, these fluctuations have a major impact on your property and insurance valuations.
Unfortunately, this surge in costs could pose coverage consequences for policyholders across the country. After all, increased building material and construction prices could lead to higher property insurance claim expenses, seeing as it would currently cost more to repair or rebuild a home following a loss.
As a result, policyholders could discover that their existing policy limits and coverage features no longer offer adequate protection—leaving them financially vulnerable in the event of a loss.
Further, insurance carriers may increase policyholders’ premium costs to account for the risk of elevated claim expenses. Coverage limits must rise in order to provide full recovery on a property loss needing significant repairs or a complete rebuild after a loss.
In light of these ongoing cost concerns, it’s important for policyholders like you to respond accordingly. As such, consider taking the following measures:
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About Top O' Michigan Insurance Solutions:
At Top O’ Michigan Insurance Solutions, we pride ourselves on using our skills to provide clients with competitive pricing, stability and understanding, and peace of mind. With eight locations throughout Michigan and 24/7 client access, our team is your 'expert buyer' of insurance for home, auto, farm, boat, motorcycle, business owners, workers compensation, bonds, life and health, employee benefits and more.
We will provide unparalleled and caring service to our clients through our knowledgeable staff and give back to our employees, agency, industry and our communities. Part of our mission is to give back to the Michigan communities we serve. This is something we take action on through We Care and you can learn more about our community outreach at TOMIA247.com/WeCare.
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Author: Tyler Bartosh
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