The cost of real estate insurance claims is at an all-time high, with year-on-year claims inflation hitting 9% in 2022. In this article, we consider some of the causes and suggest some practical measures you can take to mitigate the impact.
Increased building materials and labour supply costs
The construction industry has been experiencing significant shortages in the supply of building commodities like cement, steel and timber. The main causes are:
The ongoing fallout from Brexit and Covid-19
Across everything from labour and materials costs to delivery times, we continue to experience the same after-effects from Brexit and the pandemic first described in James Faiers’ article of October 2021  (opens a new window).
The conflict in Ukraine
Between them, Russia, Belarus and Ukraine were responsible for almost a quarter of the worldwide lumber exports in 2021  (opens a new window). Since Russia invaded Ukraine, and the UK Government responded by imposing trade sanctions, the cost of timber has risen by around 30%. Meanwhile, restricted flows of Russian gas to Europe and the subsequent rise in energy prices have resulted in increased production costs for steel and aluminium.
Modern Methods of Construction
The growing popularity of open-plan spaces within buildings is contributing to a higher severity of fire losses. Having fewer internal fire breaks and a reduced level of compartmentation means fires spread faster.
Push-fit plumbing is increasingly being used in new buildings, as it is faster and cheaper to install. However, there is more room for error during installation - making escape of water incidents more likely.
The UK has experienced 10 of its warmest-ever years in the past two decades, with 2022 the warmest year since records began in 1884  (opens a new window). This has led to an increased frequency of extreme weather events.
Recent examples include:
A number of significant flood and storm incidents - including Storms Dudley, Eunice and Franklin (Feb 2022) which caused £473m in property damage.
July 2022 saw the highest temperature ever recorded in the UK. This led to fires across the country, causing property damage that cost millions of pounds. Additionally, prolonged dry weather and high temperatures have been found to be a major factor in the emergence of Subsidence in properties that have been built upon clay soil
What can you do?
There are some practical measures you can take to limit the impact of such events and reduce the frequency and severity of claims that you experience which, in turn, will make your risk more attractive to insurers.
Examples may include:
Undertaking a reinstatement cost assessment at least every three years, and applying indexation annually in between, to avoid underinsurance.
Reviewing your business interruption indemnity period to make sure you have factored increased material and labour supply times into your calculations of how long it would take to re-build in the event of a total loss.
Taking a proactive approach to property maintenance. This might include updating your flood resilience plans, checking and clearing drains and gutters to minimise any ingress of water after heavy rainfall, and pruning trees and shrubs to help prevent soil from drying out around building foundations. If your insurers have applied a significant deductible to your flood cover or withdrawn it altogether, Lockton can arrange flood deductible infill cover and provide access to FloodFlash, a parametric flood insurance product. You can find out more about FloodFlash here: https://global.lockton.com/gb/en/news-insights/protecting-businesses-against-flood-risk (opens a new window)
Installing a leak-detection system in properties with a history of escape of water incidents can help mitigate damage and demonstrate to insurers that you have a proactive approach to risk management.
For further information and details on our products and services, please visit our Lockton Global Real Estate and Construction Page (opens a new window).