It is transitory or not? That is the question inflation-watchers are asking at the moment. No one knows, of course, leaving the rest of us to only worry, guess and hope.
No matter what happens, though, there is something every property owner – whether we’re talking about your business or your home – should do right away:
Get your insurance advisor on the phone today and make sure you’re not under-insured.
Prices, in case it escaped notice, are climbing at the fastest pace since 2008.
According to CoreLogic, the average price of U.S. building materials increased by 6.8% in the fourth quarter of 2020. A more recent barometer – the Bureau of Economic Analysis’ personal consumption expenditure inflation measure – climbed 3.6 percent in April. That was the strongest reading in 13 years.
What’s fueling this bout of inflation is no mystery; the economy is reopening after months of state and local lockdowns meant to contain the coronavirus pandemic.
Economists and policy wonks say all this will probably fade with time as producers catch up with consumer demand and the boost from government stimulus disappears. But what if it doesn’t? And what about the increases in the cost of goods we’ve already seen? According to the National Association of Home Builders, lumber prices alone have climbed nearly 250 percent since last spring, causing the price of the average single-family home to increase by more than $24,000.
The good news is that your property insurance policy is likely to include a built-in inflation guard.
The bad news is that your policy renews annually, so any change in your coverage limit would happen just once a year, leaving you potentially underinsured until renewal.
That is a risk not worth taking, not when values are climbing as dramatically as they are right now.
How to Protect Yourself
Here’s what we think you should do in response to the threat posed by further inflation:
- While prices are still surging, ask your insurance advisor to schedule semi-annual or even quarterly policy reviews.
- Update your property valuations. Policies are generally written according to a concept known as “Insurance to Value,” which determines how much the insurance company will pay in case of a loss. (This is the cost of rebuilding your home, not what you might be able to sell it for.) You want your ITV to be as accurate as possible so that you’re not paying any more than your deductible when you do file a claim.
- Buy the “Agreed Value” endorsement. Doing so frees you from having to pay your coinsurance, the amount that policyholders typically cover if there is a damage claim on a property that is underinsured.
- Get an Increased Replacement Cost Endorsement added to your policy. This important change will pay you up to a specified amount above your coverage limit.
If any of the above leaves you feeling as if you might be over-insured, just stop to think about how much it might cost you to rebuild without the extra layers of protection.
Sustained inflation, by the way, doesn’t just cause the price of goods to go up. Services – including insurance – also are likely to see price bumps.
An above-average Atlantic storm season, an upcoming season of wildfires and runaway jury awards won’t help, either.
The Mahoney Group, based in Mesa, Ariz., is one of the largest independent insurance and employee benefits brokerages in the nation. Contact us at firstname.lastname@example.org or 480-730-4920.
This article is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.