The impact of rebuild costs and inflation to the high-net-worth market
2022/11/22
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There is no doubt that we are living through challenging economic and political times, with a range of factors and crises resulting in rising inflation. Add to this mixture challenges around labour shortages and supply chain issues, and you have a recipe for continued cost pressure.
Here at GrovesJohnWestrup Private Clients, there are already clear signs that these economic pressures are feeding through to bottom line claims costs, highlighting the need for policyholders to maintain accurate sums insured. As Stuart Bromley, Head of Underwriting, GrovesJohnWestrup said:
Rebuild costs need to be reflective of market and inflationary trends and provide our broker’s clients with the confidence that they will be fully covered in the event of a claim.
That is one of the reasons that GrovesJohnWestrup provide new and existing policyholders with complimentary surveys from its established network of experienced and specialist surveyors. These comprehensive surveys mean that clients can be confident that they are not at risk of being underinsured or over-insured.
Underinsurance may leave policyholders in the unfortunate situation of a claim being settled on a proportionate basis should an event occur. Over-insurance could mean that the premium has been calculated incorrectly and the policyholder is paying too much. It is important to note that following a survey to assess a more accurate rebuild value premium may be adjusted up or down on a pro-rata basis, depending on the survey findings.
As an additional service, we are also happy to work with policyholders to offer flexible survey solutions based on their personal circumstances, or for those who are in need of understanding any additional costs due to new developments or extensions such as a new kitchen or home office to underground swimming pools, tennis courts or marble floors.
What are rebuild costs?
Determining rebuild costs is a sophisticated process, consisting of a number of different, interwoven features.
One aspect of course is the materials that go into any building. And these are on the rise. In fact, even before inflation started to spiral this autumn, basic raw construction material costs had been accelerating. The Builders Merchants Federation has reported that year on year timber prices in June this year were 30% higher than the year before, and Buildiro recorded a 15% hike in the cost of wooden cladding over the same time period. Roof tiles have also taken off, increasing by 24% over the last year according to Quotation Check.
Recent price increases for construction materials
* source: https://www.homebuilding.co.uk/news/construction-materials-shortage
Other basics such as fabricated steel jumped 52.7% in the year to May 2022, and concrete reinforcing bars were up by 37% on the year July. Brickmaker Forterra increased prices by 12% in April this year. Cement prices are also creeping up, with the EY Item Club having warned that the only way is up for concrete prices this autumn.
Overall, it is self-evident that raw material prices are going up, and will, in most cases, continue to. This price inflation is, and will, in turn impact the cost of all other building related items.
Rebuild costs are also being impacted by changes to regulation (build back better) as well as existing labour and supply chain issues, which are resulting in delays to work being commissioned and carried out. The construction sector for example recorded a 25% fall in staff availability last year. These ongoing labour shortages also mean higher wage-rates as supply is outstripping demand. In addition, the energy crisis is also having a direct knock-on effect in terms of the cost of certain machinery, such as high-power consumption dehumidifiers used in the wake of common escape of water or flood claims.
As Millie Popplewell, Underwriter, GrovesJohnWestrup surmises:
Rebuild cost for GrovesJohnWestrup is not just the bricks and mortar or the market value. It is the cost of everything that would go into fully rebuilding a property, including architect and surveyor fees, listed-building specialists, conservation officers, party-wall solicitors, debris removal, rebuilding materials and labour, specialist contractors such as stone masons and of course alternative accommodation. These are all tied into the rebuild cost that we put against the building sum assured.
Extended Replacement Cover
Providing that the property has had a survey within the last 3 years, with the results agreed by GrovesJohnWestrup, our property policy also includes Extended Replacement Cover, which means policyholders can be assured that whatever the eventual costs of any rebuild, (unless it is a Grade 1 listed property) all costs, including alternative accommodation will be met in line with individual policyholder terms, clauses and conditions as per their schedule and wording.
During these times of great uncertainty across the economic and political spectrum, high-net-worth policyholders can rely on Munich Re backed GrovesJohnWestrup and can rest easy that their home and property portfolio will be protected by the Extended Replacement Cover extension if they have had a survey undertaken in the previous 3 years.