Inflation's mark on the insurance industry is significant in 2022

Ensuring adequate insurance coverage for your property. 

Written by John Korsmo, American Church Group of Colorado, Nebraska, Dakotas, Wyoming, Kansas 

As we enter the middle of 2022 amidst uncertainty in many areas, we continue to look at ways our ministries may be exposed. Inflation has reared its ugly head into the economy, and it has a massive effect on the construction industry, trickling into areas that matter to you and your ministry.     

Disasters and significant losses do happen. When they happen amidst normal market conditions, the process of rebuilding can be complex. When they occur in the middle of unprecedented inflation and labor shortages, it is essential to know we thought ahead and took proactive measures for adequate protection.  

This article aims to give you a quick snapshot of what we currently face and what can be done to ensure your ministry will be protected in a disaster.  

Inflation’s effect on Construction Costs  

Since the spring of 2020, we have experienced significant increases in construction costs, including materials like lumber, steel, and others, due to supply and demand issues. In fact, Associated Builders and Contractors (ABC) recently reported construction input prices as of December 2021 are up an astronomical 24.5% for nonresidential construction compared to the previous year! 

As we continue to see on the news, shipyards are full of cargo carriers waiting to load or unload their cargo worldwide. The motor carrier industry in the United States is also strained, causing large delays in delivery, and driving up prices and demand. As the cost for items such as lumber and plywood increases, so does the overall replacement cost of any buildings that rely on these construction materials. 

Contractors have begun to feel the effects of this in the bidding process. Many have told me that bidding on a job is more challenging than ever because they do not know when they will get the materials or how much they will cost when they receive them. According to a recent article on constructiondive.com: David DeQuattro from RGB Architects Corp., said, “Every bid is bet against a three-headed inflationary dragon.”  

To read the full article click here.  

How does this affect your ministry?  

If your church sustained a total loss, the insurance company will repay up to the policy limit to restore you to your condition before the loss. Because of the unprecedented inflation (which has continued since the December report from Associated Builders and Contractors), ensuring that proper limits to restore the claimant back to their previous condition could be challenging in some cases unless proactive measures are taken.  

For example, if your church building was insured for $10 million in 2020, it means that it would need to be insured for closer to $12 - $13 million to have adequate coverage to replace your building. In addition, rebuilding a large structure may have taken 18-24 months (about 2 years) in the past, and that timeline may be stretched into 30-36 months (about 3 years).  

What Can Be Done about this?  

Brotherhood Mutual partners with one of the industry leaders in property valuation. They recently released Q4 2021 valuation factors for replacement cost estimators. These updated factors reflect a higher increase than typical, and the primary driver is the increased cost of building materials.  

At renewal time, we see average property coverage increases between 10% and 25% in the states we represent. Right now, seeing these coverage increases is a good thing, and it means your policy is staying up to date with increasing construction costs. The factors that lead to an increase on the low or high end depending on the market in that location, among other factors.  

In addition to our proactive coverage increases, we do recommend considering the following options:  

  1. Consider adding Broadened Valuation, a policy enhancement that will pay up to 125% of a building’s scheduled coverage limit after a loss (this is a VERY affordable option and was created to address issues like we are currently facing).  

  1. Consider adding inflation protection to your properties, which is a provision that increases your replacement cost by a small amount over time.  

  1. Consider increasing your extra expense coverage, which supplements the additional costs you incur due to a covered loss (setting up temporary infrastructure and other comparable expenses).  

While we are living in a crazy market, we want you to know Brotherhood Mutual is proactively addressing these issues to find the most affordable ways to address these exposures so you can rebuild after a catastrophe. 

If you have any questions, please reach out to your agent or our incredible service team. We are here for you, and we have your back! You can reach them by phone at 877-794-2330 or by email at clientsupport@americanchurchgroup.com

  
John Korsmo - President 

John Korsmo serves as President of American Church Group in the territories of Colorado, Nebraska, Kansas, the Dakotas, and Wyoming. Together, their team serves and insures around 3,000 ministries across six states. 

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