4 October 2021

How higher rebuild costs impact home insurance premiums

By Steve Moores, Dip CII CLIENT DIRECTOR

Your buildings sum insured is the total cost of rebuilding your property from scratch, and the rebuild cost will vary according to the size, age, location and type of property you have.  RICS figures[1] show an increase this year in the house rebuilding cost index and, as insurers base their rebuilding indexation on this figure, you may see larger increases in your buildings sum insured versus last year. And if your sum insured increases, then so might your premium.

What has caused this increase in rebuilding costs?

Rebuild costs have increased over the last 18-24 months because of higher demand and lower supply caused by Covid-19 and Brexit:

  • Homeowners are spending their money on home improvements, extensions and loft conversions, rather than foreign holidays.
  • Due to Covid-19, there is a shortage of some building materials. As a result, cement prices are up 15%[2], timber prices are up 85%[2] and copper prices are up 40%
  • Brexit has resulted in a shortage of skilled labour. Pre-Brexit, 26% of skilled building workers were EU nationals. Data shows that there has been a forecasted 40% decrease in the number of skilled construction workers coming to the UK and a 58% reduction in low skilled workers[3].
  • Since Brexit, Sterling has dropped 20% versus the Euro[4]. So, for example, the cost of importing Italian marble or Polish timber is up.
  • There are supply line issues with a shortage of lorry drivers.

If you have a claim, any repair could take longer because of these challenges. And a delay in making your home habitable again will require you to stay in alternative accommodation for longer, adding to the cost of the claim to insurers.

What can you do about it?

Ensure your rebuild cost is correct to start with.  Around two thirds of homes are insured for less than 70% of their rebuild cost.

You can do this by obtaining a fresh buildings valuation from a qualified surveyor, like www.rebuildcostassessment.com.

Some insurers will then add a contingency of 25%, 50% or even unlimited on to your buildings figure. Alternatively, you can look for a policy that gives a blanket rebuild figure but do watch out. Many of these top out at £1m.

If you’d like to speak to us about your home insurance and building sum insured, please call us on 020 7543 2801 or email [email protected]


Sources

[1] https://www.rics.org/uk/products/data-products/insurance/bcis-house-rebuilding-cost-index/

[2] https://www.theguardian.com/business/2021/may/08/cost-of-building-work-on-uk-homes-to-rise-as-price-of-materials-soars and https://www.homebuilding.co.uk/news/construction-materials-shortage

[3] Brexit exodus: UK construction staff shortage leads to project delays and fewer new homes – CityAM : CityAM

[4] British Pound to Euro Spot Exchange Rates for 2015

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