The commercial property industry has experienced moderate increases in property rates. Within the last year alone, building material costs have risen by 40-80%.
2020 set a new annual record of 22 weather and climate events in the US, where it was previously only 15. We have seen a substantial increase in the frequency of catastrophes across the country, causing an influx of property rebuilds and thus the demand for the necessary materials.
Construction projects are taking longer than ever due to the lack of skilled laborers. Partially brought on by the pandemic, extended project timelines are increasing the cost of projects, as construction companies struggle to complete builds in a timely and cost-efficient manner.
Due to the recent increase in catastrophic and non-catastrophic weather events, fires, and non-weather-related water losses, the insurance industry has changed how risk is viewed. In tandem, rate inadequacy has risen and is expected to continue to do so in 2023.
Much like rate inadequacy, reinsurance costs have continued to rise due to the influx of loss events across the globe. As these types of events are expected to endure, reinsurance costs are expected to continue to rise.
Don’t Be Underinsured – Coinsurance Penalty Can Be Costly!
A policy on a location in Florida was written in 2014 with a Building coverage limit of $700,000 and an 80% coinsurance clause. The building is 6,500 square feet ($108 per sq. ft.) The location is a small shopping center including a deli, vape store, and hair salon. The limits had not changed since first writing the policy in 2014. After a fire, the total value (replacement cost) for the structure came in at ~$1,200,000. In this scenario, the loss was around $500k which resulted in a coinsurance penalty of over $125,000.