Property rates across the nation have continued to rise so I created this article to dive a little deeper into the issue. ITV which is also known as insurance to value is one of the most significant issues impacting property insurance rates in 2022.
ITV represents how the building coverage limit on your property insurance policy compares to the required cost of rebuilding that same property today. Insuring your property for anything less than 100% of its value could mean you wouldn’t have enough coverage to replace your building in the event of a total loss
Recently I sat down with a commercial building owner here on Long Island, New York. This business owner had their building insured for one million dollars when I reviewed their commercial property policy. After we reviewed the policy we ran all the reconstruction numbers and found out it would cost 1.4 million to rebuild that building in the event of a total loss.
Why this is a problem:
- When you are underinsured you are potentially opening yourself up to a co-insurance penalty which varies on every policy (you can learn more about co-insurance penalties here: www.irmi.com).
- In the event of a total loss, you would come out of pocket for the difference that your building should have been insured for, plus your deductible, plus the co-insurance penalty (in the scenario above over $400,000.00).
According to CRC Group Redy Index continuing supply chain pressure and nationwide post-pandemic demand surge means the cost of building materials and labor are quickly outpacing inflation rates. These factors have increased pressure to more accurately reflect the total cost to replace damaged property, which is driving insurance premiums upward, apart from any increased rate carriers may be seeking. ITV concerns are also generating changes in program structure as well as the basis for declinations with many underwriters.
You can read more in-depth about this on CRC’s website here.
Also, the Big I recently put out an article titled “The Effects of Inflation, Underinsurance, and Business Interruption” and explained that contractors have been experiencing record cost increases for numerous materials since shortly after the pandemic began. Construction bid prices have also increased significantly but, unlike prior to the pandemic, have not kept pace with recent Producer Price Indexes.
Construction and commercial equipment costs have also been subject to significant increases over the past 36 months. The construction cost increases have been driven by fuel prices, material costs, labor shortages, and other supply chain issues. You can find that full article here.
Make sure to review the building coverage limits that are listed on your commercial property policy with a licensed broker. You want to ensure that your building is insured for 100% of its value in the event of a total loss. Many clients only find out they are underinsured when they need to make a claim.
If you are interested in learning more about this or if you’re interested in purchasing a new insurance policy, then I would encourage you to reach out to us today via the information below.
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O: (631) 517-9211