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Properties May Become Underinsured as Costs Of Building Materials Rise

This can have significant implications for insurance policies that are subject to coinsurance or margin clause provisions, according to an article appearing in the council's Sept. 14 e-newsletter. With a more than 10% increase in the cost of building materials over the past 12 months, building owners who simply renew a policy from the previous year without reviewing their coverage for replacement costs could find themselves under-insured in the case of a loss.

"The recent rise in materials costs should serve as a wake-up call to property owners to review not only their insurance coverage, but also how coverage amounts were calculated," says At Risk, an online publication of Marsh Risk Consulting.

An Aug. 19 report from Marsh — "At Risk: Rise in Building Materials Costs Means Properties May Be Under-Insured" — looks at strategies that will help property owners keep their policies up-to-date and ensure that they have sufficient coverage in light of the current run-up in building costs.

In addition to reviewing property replacement values in the current environment, businesses should also ensure they have the appropriate amount of business interruption insurance.

"You should obtain detailed location-specific estimates that take into account rental values, ordinary payroll, pure extra expense and the time necessary to repalce the property," the article tells business executives.

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