By Tyler Adams, Product Specialist I at West Bend Mutual.
Inflation has certainly become a buzzword as of late, and specifically within the insurance industry. If you’ve purchased anything during the last year (in other words if you’re human) you’ve without a doubt felt inflation’s effects to some extent. It’s also no secret that some industries have felt the effects of inflation more than others. Unfortunately, from an insurance perspective, construction has been one of the hardest hit industries over the last couple of years.
According to publicly available industry data provided by the U.S. Bureau of Labor Statistics, the cost of construction materials in general in the United States has increased 48.9 percent since the beginning of 2020. Let’s break this down further by some common commodity types:
- Copper pipe and tube – 88.3% increase
- Plywood – 74.2% increase
- Fuel oil/gasoline – 72.2% increase
- Steel pipe/stainless steel – 60.1% increase
- Lumber – 54.6% increase
- Structural steel – 52.1% increase
- Asphalt shingles – 33.5% increase
- Cement/concrete – 22.9% increase
Speaking from personal experience, it’s a difficult time to be house hunting or considering a home renovation. Home values have increased significantly, primarily due to the increased cost of construction materials. This trend has carried across to commercial properties as well, making insurance-to-value an extremely relevant insurance topic. It’s as important as ever to ensure that properties are carrying an appropriate amount of coverage considering the current trend of inflated building costs. To help policyholders with this task, one major carrier (West Bend Mutual) is rolling out some necessary adjustments to their Business Owners Policies (BOPs).
If you have a West Bend policy, effective November 1, 2022, the default automatic increase (inflation guard) factors on all BOPs will increase from 4% to 8% on buildings and from 2% to 4% on business personal property. Please note the following:
- These automatic increase factor adjustments will only apply to property valued on replacement cost.
- Property valued on guaranteed replacement cost or extended replacement cost will remain unchanged, and 6% automatic increase factors will apply.
- Property valued on actual cash value will remain unchanged, and automatic increase factors won’t apply.
- If the automatic increase factors are already higher than 8% on buildings or 4% on business personal property, those higher factors will remain on subsequent renewals.
These adjustments are in direct response to the increases in material costs that have affected the construction industry. We know inflationary pressures are pushing costs higher for most products and services, and we’re sensitive to how this affects policyholders. However, these adjustments are necessary to help ensure that properties continue to carry appropriate coverage.
We ask that our agents and policyholders continue to stay diligent in reviewing property values on an annual basis. The last few years have proven that construction costs, as well as property values, can be volatile. While the adjustments to the automatic increase factors on BOPs will be a helpful tool in keeping insurance values current, we understand that each property is unique and that our agents and policyholders often have the best understanding of the properties being insured.
As always, please don’t hesitate to contact your Account Manager if you have any questions: 414-421-3800.