Inflation, Property Values, and Insurance

How have property values and inflation in the cost of construction impacted the property insurance market?  Inflation has been a major story for the whole of 2022 so far; however, we saw significant rises in costs throughout 2021, particularly in property values and the cost of construction.

Property values have increased in a number of ways.  The steady high demand for residential property combined with a still limited supply has created continued upward pressure on home prices.

But what we’re going to address today is how the increased costs of both materials and labor in the construction industry is affecting property insurance.  This affects you if you own any type of real property.

Property Values – 2021 Recap

The cost of construction materials rose across the board in 2021.  Lumber increased by 34.2%. Plastic & Copper Plumbing rose an astounding 56.3%. Asphalt Roofing increased by a much more reasonable 9.9%.

We also saw increased wages across the board. In construction, wages grew an average of 6.1%.

Property Values – 2022 So Far

In a report by Moody’s Investors Service, “Materials and labor costs grew 26.7% and 5.5% respectively, in the first four months of 2022 compared to the same period of 2021.”

“Materials and labor costs grew 26.7% and 5.5% respectively, in the first four months of 2022 compared to the same period of 2021.”

We’ve already seen sustained inflation and it appears this trend is not slowing down.

The combined increase in both materials and labor has raised both new construction and reconstruction costs of property through the US.

The Insurance Industry Response

As you might expect, property insurance rates are increasing.

Since 2015, Homeowners Insurance rates have increased by between 3% and 5% annually, with the expectation of about a 7% increase this year.

Commercial property rates have increased by 13.5% and 9% in 2020 and 2021, respectively.  And they’re expected to increase by between 5% and 15% in 2022.

For a look at where property insurance is a true hellscape, check out the situation in Florida.

In addition to increasing rates, a bigger problem for people who end up with property damage is that limits of coverage are not keeping pace with construction costs. This leaves property owners in a tough position that they might not even know they are in.

The underlying problem

One of the problems with not having enough insurance coverage is obvious – if your building burns down and you don’t have enough coverage, you’ll end up paying out of pocket.

a house fire being put out by firefighters on a ladder

The reality is that most losses don’t result in total losses.  A fire starts in your kitchen and does both direct fire and smoke damage.  Your home can be repaired and it’ll be costly, but the limit of coverage on your home is probably going to excess the total cost.  So what’s the problem if you don’t have enough total coverage?

The problem is that most property policies have what’s called a coinsurance clause.  If you’re not insuring your property to the correct value as compared to true replacement cost, you can end up footing a significant amount of the bill, even for smaller or partial losses.

This is one of those “hidden” insurance clauses that no one ever reads.

For larger property schedules, your annual Statement of Values becomes increasingly more important.

What can you do now?

The first thing you can do is to find the last few years of your insurance policies and compare the coverage limits on your property and how they’ve grown in the past 3 years. If they are increasing by a large percentage each year, or if you’re consulting with your broker annually to update your Statement of Values, you’re probably in good shape.

If your limits have largely remained stagnant, it’s probably time to dig a little deeper.

When you’re ready to get started, you can schedule an initial consultation with one of our Risk Advisors here.

You can also contact us directly at or by phone at 610.671.3500.

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Are you ready to save time, aggravation, and money? The team at Stillwell Risk Partners is here and ready to make the process as painless as possible. We look forward to meeting you!

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