4 Ways Inflation Impacts Commercial Property Valuation and Insurance

Inflation Led to Inflated Values and Underinsured Companies

In the wake of sky-rocketing inflation, many businesses now find themselves underinsured. In the event of an accident, they face reduced insurance claims that won’t pay for rebuilding expenses and replacement costs.

That harsh reality should make every business reassess their insurance programs. Rising construction costs have led to increased property valuations. High raw material costs have driven up the price of building and machinery. Supply chain issues are causing machinery delays that may not have been accounted for when putting insurance programs in place.

Accurate valuations of insured assets like property and equipment are more critical than ever – but they can be difficult to ascertain given the complexities of today’s market. We recommend a property valuation assessment to determine updated values for all insurable assets. It will empower you to re-evaluate your insurance coverage and risk management plans.

Getting the values correct has downstream effects for accurate loss estimates and risk modeling as well as accurate value accumulation for natural catastrophe modeling. It also has effects on reinsurance and leads to better risk improvement recommendations.

Here are 4 ways inflation has affected valuations:

1. Volatile raw material costs. The price of lumber, steel, paint, concrete, and other materials have been increasing in recent years. The Bureau of Labor Statistics found that costs for building materials rose 20.3% since February 2021 and 28.7% since January 2020. The lumber industry has gotten particular attention due to its importance to the building process as well as sharp price fluctuations. Many mills ramped down operations during COVID-19, thinking construction projects may be on hold. Instead, a residential renovation boom and wildfires led to incredible demand. Meanwhile, fabricated steel and steel pipe and tube costs rose considerably too.
2. Supply chain issues. Long lead times and delayed deliveries have become commonplace as the world continues dealing with worker shortages and reducing capacity. While companies with lots of space have the luxury of storing extra materials, that’s much harder for businesses in more crowded places like New York, Philadelphia, etc.
3. High demand for skilled labor. Many skilled laborers retired during the pandemic, leaving a lack of apprentices and skilled replacements. In fact, the Associated Builders and Contractors say the industry must attract nearly 650,000 additional workers in 2022 on top of typical hiring numbers. The industry is also dealing with a lack of knowledge transfer because many apprentices didn’t have enough time to mature. That’s causing wage increases due to increased project demand and higher competition for workers.
4. Lingering effects from the pandemic. COVID-19 project delays reduced construction capacity around the world and some companies are still playing catch-up. Meanwhile, travel restrictions led insurance valuation professionals to do more desktop reviews using satellite imagery, discussions with personnel and reviews of documents.

Don't Risk Being Underinsured, Get an Insurance Asset Valuation

For more than 30 years, our valuation service team has conducted property insurance appraisals for some of the world’s most successful businesses. Property Valuation Assessments from TÜV SÜD Global Risk Consultants include accurate loss estimates, risk modeling, natural catastrophe risk accumulation, and more.

Property valuation assessments helped Brookfield Properties analyze their risks and insurance needs. Frank Francone, Director Risk Management at Brookfield Properties said, “working with the TÜV SÜD GRC team has helped us reduce our risk profile markedly.”

What can we do for your business? Contact us today.