Surging Construction Costs Create Surging Risk of Being Underinsured

Summary:  The Covid-19 Pandemic has created numerous challenges across a variety of industries. The insurance industry is no exception. Early on the insurance industry faced issues directly related to the pandemic such as coverage for loss of income and dealing with policy deadlines that could not be met due to nationwide shutdowns. Now, there is a new challenge; a challenge that runs deeper and impacts every person or entity that buys or sells property insurance. This challenge is how to adequately insure property in a market that is seeing substantial and rapid increases in construction costs.

In the beginning of the pandemic, production of many key construction materials, such as lumber, slowed dramatically. At the same time, demand increased. This is based on a combination of events. According to a recent article in Fortune, “At the onset of the pandemic, quarantining Americans set-off a home renovation and DIY boom that is still keeping places like Home Depot busy today. Additionally, low interest rates and tight existing home inventory have more home buyers looking for new construction. Indeed, in December housing starts hit their highest level since 2006.”