Director at chartered Sheffield broker IFM Insurance Jamie Harvey discusses the knock-on effect for the insurance industry of supply chain shortages and rising costs.
Over the past 12 months there has been a significant increase in the price of materials needed, particularly for the building, construction and motor spares industries.
The impact of Brexit and the pandemic has resulted in a sharp increase in costs caused by supply chain limitations and increased demand in building and motor part materials. Added to this, we are seeing a shortage of skilled staff. What’s more, the shutdowns of factories caused by various lockdowns and people working from home have only exacerbated the problem.
Shortages in the UK have seen prices for repair work materials increase 26.2 per cent year on year in October 2021, according to statistics from Department for Business, Energy and Industrial Strategy.
The greatest price increase has been seen in fabricated structural steel (70.6 per cent year-on-year change), imported sawn and planed wood (up 69.6 per cent), and concrete reinforcing bars (an increase of 60.5 per cent).
Tender costs are also increasing, with builders and contractors expecting contractual delays caused by material shortages and further increases in material prices.
In the motor industry, production stoppages caused by the pandemic and shipping delays are placing more pressure on dealerships, garages and body shops to obtain replacement parts to fix and repair vehicles. This has had a knock-on effect with many fleet firms now required to keep vehicles on site for significantly longer periods than originally intended.
Against this backdrop of price increases, we have seen rising costs of claims across a wide range of property and motor classes. This means that policyholders are facing the potential prospect of their policy limits becoming insufficient to meet the costs of rebuild or repair.
In the current challenging environment, it is therefore vital for firms involved in the building, construction and motor spares sectors to ensure their assets are valued correctly so that in the event of a claim their policy will respond.
With labour and building materials set to increase into 2022, it’s important for firms to ensure that their sums are insured at the correct levels. Taking such measures now will help ensure that their business doesn’t become a victim of being underinsured.
It is the broker’s job to ensure that an insurance policy will deliver and perform exactly as expected when a claim is made. They have a duty to remind business owners of the consequences of underinsurance and how they can take the right actions in a cost effective and efficient manner.
A broker knows what is at stake. The future of any business rests on arranging the best insurance cover and not a bundle of clauses that effectively prevent policyholders from making a claim.
IFM’s top tips to combat underinsurance
Meet with your broker well before your next renewal to uncover whether your business insurance is providing the right protection.
Ensure replacement cost estimates for buildings, contents, equipment and business interruption are set at the appropriate coverage levels.
Conduct regular, accurate valuations of buildings and contents using a professional valuer.
Consider how any inflationary increase could affect the sum insured. Although most policies are index-linked, an increase in the cost of building materials could directly impact on rebuilding costs.
Consider increasing the indemnity limit of your business interruption insurance to at least 24 months, to allow for the delays in obtaining building materials and replacement parts.
