The latest commercial property report from loss adjuster Woodgate & Clark confirms that continuing cost increases are affecting the construction and building repair sector. Report author Nick Turner, senior surveyor at loss adjuster Woodgate & Clark, said that closer working between insurers and builders will assist managing the impact of supply shortages and inflation in materials prices.
Mr Turner said: “To get the most benefit from a network, we work with the builders and understand that while they can work to the labour element of a rate, they cannot afford to risk losing money on materials. If we don’t, there is a risk that firms will transfer their attention to other sectors.”
He explained that building firms work in both the insurance repair market and in home improvement, where demand remains high, making it an attractive option for building firms.
A recent Checkatrade survey found that the average person was paying roughly an extra £1,342 for home improvements at the start of this year compared to the beginning of 2021. Some contractors have home improvement bookings over 12 months ahead.
Mr Turner said: “Without flexibility in their approach to materials costs, insurers and loss adjusters may struggle to find builders willing to undertake policyholders’ building repair requirements following a claim.”
He pointed to recent figures from the Construction Leadership Council, which noted price rises of between 5 and 10 per cent announced by many manufacturers this year. Energy-intensive products having increased by as much as 20 per cent. There is additional pressure following the end of the red diesel tax exemption on 1 April 2022.
Mr Turner said: “Inflation in the sector continues to be driven upwards by the rising cost of materials, supply challenges and intense customer demand.”
SUPPLY CHAIN
“Global supply chain challenges and transport delays are making it harder for builders to get hold of bricks, blocks, timber, roof tiles, steel lintels, cable trays and trunking, gas boilers and some electrical products, especially those using semi-conductors and microchips.”
To manage the issue, Mr Turner advised insurers and loss adjusters to consider allowing and agreeing a percentage increase for the materials element depending on the type of work and anticipated duration.
He added: “It may also be practical to tender the labour and plant element and work with a materials budget which is adjusted as materials are secured. Whatever solution is used, the adjuster should look at how they calculate their reserves for building repairs and take action to ensure that it is as accurate as possible.”
Although inflationary pressures in building repairs have been growing for several months, Mr Turner said he was also concerned that increased construction costs have impacted underinsurance.
He commented: “Some brokers are advising clients that there is a significant increased risk of underinsurance in the event of a claim. The current situation could make any existing underinsurance worse.”
Mr Turner’s report concluded: “While adjusters can advise policyholders and brokers what the Value at Risk is when dealing with a claim, it could be too late to avoid serious financial loss.”
“Insurers and brokers can have more impact if the subject of an adequate sum insured is discussed before there is a claim, such as at renewal.”
https://www.woodgate-clark.co.uk/media/commercial-property-costs-update-may-2022
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