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Organisations will face a higher insurance premium increase this year if they insure buildings or contents.

The reason for this is claims inflation, caused by the rise in rebuilding and replacement costs, which have risen by a sharp 24% overall in 2022.

What is claims inflation and how does it affect your insurance premium?

Because of the rise in rebuild and reinstatement costs, settling a claim following property damage will cost more. 

Insurers protect your interests by factoring in the inflation of rebuild cost (using an essential tool called index linking) so that your sum insured meets the inflationary increases on top of the original declared value submitted at the start of your policy. This increase avoids putting you in a position where you would be underinsured (providing the initial declared value represented what it would cost to reinstate the building or contents). Being underinsured will mean any claims you make to your insurer will be subject to an average clause, reducing settlements by a percentage based on how much you are underinsured. See our guide on the average clause and underinsurance, which goes into more detail.

What's happening with rebuild and replacement costs?

Material cost increases, labour shortages, Brexit and supply chain issues have all impacted the cost of rebuild/reinstatement. It would be more expensive to rebuild the same property from scratch or repair it to the condition it was before an incident.

Rebuild costs have slowly increased over the last few years but have now jumped to a 24% increase overall in 2022. BCIS currently expect this to ease off over the next 5 years.

These increases have come about through a variety of factors:

• Brexit induced inflation and supply chain issues in international trade such as tariff changes
• Workforce shortages and changes in immigration rules
• A decline in the pounds' value and added bureaucracy further complicate workforce issues
• Covid lockdowns and closures reducing manufacturing capacity around the world
• Furloughing of construction workers putting delays and driving up labour costs
• Surge in DIY projects over lockdown, creating strain on the supply chain and further increasing the cost of materials
• Material stockpiling and over-ordering causing further strain on the supply chain
• Low unemployment and increased salaries, increasing the cost of labour
• Inflation of fuel and energy costs driven by supply chain issues
• Long lead times in manufacturing
• Environmental factors like war driving up energy prices as well as extreme weather events that have damaged timber production

So what can you do?

• Ensure you have an accurate rebuild value at the start of your policy to avoid underinsurance
• Ensure other declared values on specified contents, computer equipment, plants and machinery reflect the cost to reinstate items
• Check the indemnity period for business interruption cover to account for supply chain issues and delays
• Consider using a valuations expert for specified items and a rebuild cost assessment - Access can help you obtain this at a preferential rate with our partners
• Review your insurance with Access and your other suppliers to see how your services can be made more cost-effective

Access can help you make your insurance cost-effective, so you only pay for the cover you need.