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The Problem Of Rising Reinstatement Costs

fire damage, Flood Damage, insurance, Loss Assessor, property, property damage, property repair, reinstatement, rising costs

Rising Reinstatement Costs

Rising reinstatement costs are important for homeowners to keep on top of, to ensure that your property is correctly Insured for the right amount.  

What Does Reinstatement Cost of Property Mean?

The reinstatement cost is how much it would cost to fully rebuild a property from scratch if it had been completely destroyed. It is imperative that these costs are correctly calculated in your Insurance policy so that in the event of a claim, Insurers can pay out the correct amount.

Changes in Labour Demand

According to the Builders Merchants Federation demand for building materials and labour remains strong, but there are the first signs of a slight shift in the balance of demand. Some regions are reporting a decline in the level of retail sales for DIY and home improvement projects; compensated however by higher volumes of trade sales. Insurance claim tender processes almost becomes obsolete when they are submitted with most contractors suffering from some form of under-pricing the moment they become approved.

Construction worker, in relation to current labour demands.
Changes in labour demands can have a large impact on reinstatement costs

Supply Chains Not Affecting Reinstatement Costs

The good news is that the supply chains remain stable, with full production and good availability of most products. Supply challenges continue to affect bricks, air Crete blocks, roof tiles, gas boilers, plastic drainage and other plastic products dependent on polymers, as well as some electrical products particularly those using semi-conductors. It is important for the policyholder to be made aware of these potential delays to a claim.

Inflation Increasing Reinstatement Costs

The rate of inflation remains the major concern. There are reports that some suppliers are only willing to hold quotes for tender prices for 24 hours. The resulting uncertainty is that contractors are unwilling to commit before entering fixed-price or long-term contracts. Insurers are aware of this cost leakage and should pass on the cost of the delays or rising prices.

As highlighted in previous statements, the volatility of energy prices has begun impacting the market. Some manufacturers of energy-intensive products are now warning of surcharges linked to energy costs. This issue is not limited to the UK; the cost of energy is impacting manufacturers across Europe, with reports of cement plants in Spain closing due to the latest increases. However, UK manufacturers are managing stocks and the supply chain to enable continued supply.

Material Prices Rising

UK brick and block stocks have also increased slightly during the quieter winter months but as the market accelerates in the spring it will be essential for builders to plan ahead and work with manufacturers to ensure timelines of availability.

The Problem Of Rising Reinstatement Costs
Costs of bricks have increased slightly over winter, subsequently boosting reinstatement costs.

The boiler market has also been impacted by unprecedented demand coupled with supply chain challenges for steel, cardboard, plastics and electronic components. While availability will remain constrained over the summer months, manufacturers remain hopeful that the supply and demand will normalise by the end of the year.

Regarding plastic products, there are reports in some areas of shortages of raw materials that could lead to spikes in prices, but indications are hopeful that such matters may be sorted later in the spring.

Paints and coatings continue to be affected by ongoing raw material shortages recently exacerbated by further lockdowns in China and by the war in Ukraine. This is likely to affect prices, and possibly the availability of some products over the coming months.

After a turbulent 18 months, timber presents a positive picture with stable prices and plenty of stock in the UK, along with fewer problems reported with the ports and haulage. We note, however, that the market for MDF (medium density fibreboard) has seen marked price increases due to the soaring cost of oil derivatives which are key components in MDF resins and the melamine surfaces applied to such panels for use in kitchen and bathroom furniture. The rise in the prices of many materials will consequently push up the cost of reinstating properties.

Reinstatement costs impacted by war in Ukraine

Looking ahead, the war in Ukraine and the resulting sanctions on Russia and Belarus are likely to constrain the supply of pallets, birch plywood and OSB (oriented strand board). These countries are major suppliers of pallet wood and manufactured pallets, as well as large producers of the components of the resins used in wood-based panel manufacture including OSB. Russia is also one of the main sources of birch plywood, used in a variety of applications from transport and shop fitting to furniture and die cutting.

Other product areas that may be affected by the Russian invasion include ceramic tiles and sanitary ware, as Ukraine is a main source of supply for kaolin used in their manufacture. As reported previously, this group is also actively monitoring the indirect impact of sanctions on Russian steel, including heavy plates, coil and slab intended as upstream products for the EU market. Any shortages on the continent could have a knock-on effect on the UK market.

Ukraine trade
The invasion of Ukraine has had a big impact on the supply of many different materials.

The war is already impacting the global shipping industry. Many countries have banned ships associated in any way to Russia. More widely, shipping lines are suspending or changing bookings because of sanctioned cargo, and congestion at ports is increasing owing to more stringent customs checks. In addition, Ukrainian and Russian nationals account for 15% of the global shipping workforce; with President Zelensky calling for all Ukrainians to return to fight, a severe workforce shortage could soon become apparent.

What should you do about rising reinstatement costs?

It’s important when you are quantifying claims for reinstatement that you allow for fluctuating material and labour prices in your fixed sum tender processes. Failure to do so may leave you being underinsured. Use a Loss Assessor such as Oakleafe Claims who will prepare and present your claim allowing for inflationary rates in your settlement negotiations.

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