The last couple of years in Australia have brought about several impactful changes to our economic environment. With increased costs across the board, insurance premiums have not been spared. However, while insurance premiums have increased, the sum insured value to accurately insure your property has also been affected.
What was once a value that allowed you to be fully insured, may no longer be correct. Most people know what they paid for their home or business assets, but this is often a different value to how much it costs to rebuild or replace. High inflation, collapse in the construction industry, increase in material costs and lack of available trades combined with multiple catastrophe events has seen the replacement cost of buildings skyrocket.
The following article will explore the impact of these events on sum insured values and provide tips to assist you in nominating the correct sums insured to protect your property in the event of a total loss.
Inflation and Building Materials
We’ve all seen the headlines and felt the impact of inflation in our day-to-day lives. However, the increased cost of living crisis does not just affect our weekly grocery shop. Instead, it has a major impact on every aspect of the economy, including the supply of building materials. In the event of a total loss, builders will need to rely on finding supplies to restore and rebuild your property. However, with the increase in material costs the overall project value will also be affected. Similarly, the cost to remove debris from a property following a significant loss has also dramatically increased, particularly where asbestos is involved. With an increase cost in building materials as well as removal of debris, the sum insured value previously nominated to cover the cost of rebuilding your property may be significantly eroded.
Collapse in the Construction Industry and Lack of Available Trades
Escalating material costs combined with reduced investment and financing in the construction industry has led to uncertainty in the industry and subsequent collapse for many businesses in the construction industry. When a company collapses, the flow on effect of this is a lack of available trades. A lack of supply in qualified and available trades when demand is already high, leads to a natural increase in professional fees. This too subsequently increases the overall costs to repair and replace property in the event of a significant loss.
See also: Construction Insurance
Individually, each one of the above factors would begin to eat into a sum insured value of a property that is not adequately insured. However, when catastrophe strikes and many properties are damaged or lost at the same time, such as a bushfire or flood event, demand far outweighs immediate supply.
After a catastrophe event, the demand for trades and building supplies dramatically increases, raising the cost for these services and supplies. So, while you may have insured your building for the correct value under normal circumstances, the cost to repair or replace your building during a catastrophe event may increase. At Crucial Insurance and Risk Advisors, we have access to certain Home and Contents policies that include a Building Sum Insured Safety Net Benefit, which allows you to access a 30% sum insured top up if the cost to repair or replace your Buildings at claim time is greater than your Buildings sum insured following a catastrophe event.
With recent inflation and increased costs to supplies in the construction industry, a sum that may have once re-built your property may no longer be sufficient. To check your building sum insured is correct, click here to complete the Cordell Building Sum Insured Calculator.
Commercial Properties and Small Businesses – Impact of Underinsurance
Like domestic properties, commercial properties and businesses are also being impacted by current economic conditions. However, when it comes to commercial insurance policies, underinsurance is a significant concern. If your sum insured values do not accurately reflect an up-to-date reinstatement or replacement cost, you will be underinsured and may face substantial out-of-pocket expenses if you need to make a claim.
To check your commercial building sum insured is correct for your commercial property, please speak to one of our Business Insurance Brokers at Crucial Insurance and Risk Advisors.
This article was written by Elisha McMahon,
Account Broker at Crucial Insurance and Risk Advisors.
For further information or comment please email email@example.com.
Important Disclaimer – Crucial Insurance and Risk Advisors Pty Ltd ABN 93 166 630 511 . This article provides information rather than financial product or other advice. The content of this article, including any information contained on it, has been prepared without taking into account your objectives, financial situation or needs. You should consider the appropriateness of the information, taking these matters into account, before you act on any information. In particular, you should review the product disclosure statement for any product that the information relates to it before acquiring the product.
Information is current as at the date articles are written as specified within them but is subject to change. Crucial Insurance, its subsidiaries and its associates make no representation as to the accuracy or completeness of the information. All information is subject to copyright and may not be reproduced without the prior written consent of Crucial Insurance.