The rising cost of construction: understanding the impact on insurance

A number of factors have come together, not least the global pandemic. After an initial delay, the construction industry continued to build during the first lockdown, with suitable, and potentially costly provisions made for working in a Covid-secure manner, which led to increased demand for building materials.

This, combined with the lengthy delays associated with the production of materials, has led to demand outstripping supplies with a resultant increase in costs. Add to this the issues arising from Brexit; trade deals under negotiation, the loss of European workers and drivers etc, and a falling exchange rate. Other external influences have come into play, such as the increase in fuel costs.

Inflation continues to run higher than normal and there are still some materials showing significant increases; slate roofing has increased by about 13%¹ in the last twelve months, bricks at a similar level.  Metalwork in all forms has increased by as much as 20% in the last year. These items are used extensively in church building work and this has led to building cost inflation running at around 10%.

And it’s not just buildings. The Retail Price Index and Wholesale Price Index, collated by the Office for National Statistics, are showing increases of 10% and 16.5% respectively, down in recent months but still a sizeable increase over this time last year.

¹Building Cost Information Service, PAFI index.

There are several ways this can affect your church insurance;

• Your sums insured may need reviewing – at your next renewal your church building sum insured may be inadequate, unless we have previously surveyed and valued your church. Please see below for further guidance.
• Impact on premiums – an increase in your sums insured may be reflected in your insurance premium.
• If your church needs to claim – sourcing materials can take longer than usual and may cost more.

Where Baptist Insurance’s team of in-house Risk Management Surveyors and Appraisers have provided you with a valuation when they last surveyed your property, provided you have followed our advice and have let us know about any changes to your insured property, then we have removed any underinsurance (Average) clause, leaving you free of any chance that a claim would be reduced.

Once an accurate sum insured is set, it is important that this is reviewed and kept up to date by a suitable mechanism, which takes the (construction) market conditions and inflation into account. Your insurance policy is usually index-linked to protect against inflation.  In the case of traditional churches, we provide a bespoke uplift to the sums insured, based on BCIS Price Adjustment Formulae Indices, to ensure that figures remain adequate.