Growing costs for construction materials and labor could be driving commercial properties to be undervalued by as much as 30% for underwriting purposes, according to Tüv Süd Global Risk Consultants Corp. A disconnect between reported values and actual values can result in a coverage gap for a commercial policyholder.
From November 2021-November 2022, the cost of construction materials rose slightly more than 10%, according to GRC, which reported construction inflation has been averaging 12%-40% annually since the pandemic.
“Companies must defend their values because underwriters are now requiring more data on how they determined asset valuations. A lot of companies are not prepared for that, meaning claims won’t pay for rebuilding or replacement costs,” David Rix, global sales manager at GRC, said in a release.
At the same time that values are increasing, the insurance market is being hit with losses that are out of proportion with the premiums collected, according to GRC. This is leading to more scrutiny of estimated property values, and policyholders that cannot provide accurate estimates are seeing “blanket limits replaced with scheduled or per location limits, sometimes with the imposition of coinsurance provision as well,” GRC reported.
Article Published By: PropertyCasualty360.com https://www.propertycasualty360.com/2023/04/03/growing-construction-costs-driving-commercial-property-coverage-gap/
Written By: Steve Hallo – Managing Editor of PropertyCasualty360.com