Do you have enough building adequate insurance?

Damon Sabatini

December 7, 2022

Depending on the type of property that you own, you might need to consider getting adequate insurance coverage for it. If you are in the business of farming or commercially, you might find that you will lose your business income if the building is destroyed. You might need to consider getting homeowners insurance if you own a home.

Homeowners’ insurance

Whether you own a home or rent, you should have an insurance policy to protect you from the unexpected. Homeowner’s insurance policies are designed to cover the cost of rebuilding or repairing your home in the event of a major disaster or theft. The insurance carrier will assess your risk and set the premiums.

You should review your home insurance policy at least once a year to ensure that you are adequately insured. Homeowners’ insurance policies vary, and you may need to adjust your policy for increases in your home’s value or other specialized coverage.

The best way to get the right home coverage is to consult an independent insurance agent. The agent will be able to evaluate your coverage needs and recommend a plan that fits your budget.

Homeowners’ insurance carriers may raise premiums to offset the increased risk of claims. The cost of building materials and labor may also increase, which could leave some homeowners underinsured.

Commercial property insurance

Several factors contribute to rising commercial property insurance rates. In particular, the cost of construction materials is increasing at a record rate. The increase in repair costs also increases overall claim severity.

Older buildings are often more susceptible to damage and are more expensive to insure. The value of your business assets will also be a key factor in determining the cost of your commercial property adequate insurance. Besides the value of your business assets, you may also need to consider the type of tenants you have.

The location of your business is also a factor. Properties in areas that are densely populated or in areas that are susceptible to weather-related catastrophes will cost more to insure. Properties in areas well-protected by fire departments will also be less expensive to insure.

Many policies now contain margin clauses. These clauses limit payouts to 110% or 125% of the value of an individual building. These clauses prevent policyholders from underinsuring or abusing their coverage.

Moody’s Investor Service

Having adequate insurance coverage is important, especially as building costs are rising. Moody’s Investor Service recently said insurers are not raising rates fast enough to offset the rising cost of construction materials. Insurers have increased rates by about 3%-5% a year since 2015. They are expected to raise rates by 6.5% in 2022.

The rising costs of construction materials are driving up repair and rebuilding costs, which affect insurers’ combined ratios. According to the US Government’s construction inflation software, insurers also have to pay more for construction labor, which is increasing by about 26.7% in the first four months of 2022.

Moody’s also warned that the rising costs of construction materials would also cause construction project delays and labor shortages. As a result, the combined ratios of reinsurers and insurers would be negatively affected.

As building costs rise, insurers may be concerned about their policyholders shopping around. Insurers may be reluctant to increase rates more than the average yearly inflation rate, which could affect retention rates. Moody estimates that commercial property insurers will increase rates by about 13.5% in 2020 and about 9% in 2021.