FEATURE
PICTURE : CHRIS BOOTH
Whatever the weather
Navigating the rising costs of property claims
Graeme Mills ( pictured ), claims manager at the Teesside office of national insurance brokers Gallagher , reflects on rising property claim costs and the risk of underinsurance .
In recent years , businesses across the North-East have faced a sharp rise in property claim costs , a trend with significant implications for local enterprises . Understanding the factors driving these increases - along with the roles of underinsurance and the average clause — can help business owners better manage their risks and insurance needs .
The impact of extreme weather events One of the most pressing factors contributing to higher property claim costs is the increase in extreme weather events . The North-East , for example , has experienced more frequent and severe storms , heavy rainfall and flooding in recent years . Notably , the tides along the Tees and the North Yorkshire coast have reached their highest levels since December 2013 .
As a result , local businesses in areas affected by recent storms or floods have faced substantial repair and replacement costs . Extreme weather can cause significant damage to buildings , equipment and stock , leading to costly claims .
As these weather events become more severe , the financial burden on insurers — and ultimately on policyholders — continues to grow .
Property repair and cost of building materials Economic pressures have significantly driven up property claim costs , with surging prices for building materials and labour due to global supply chain disruptions and domestic shortages . For local businesses , this means that repairing or rebuilding damaged property is now more expensive , leading insurers to adjust premiums accordingly , which can strain budgets , especially for smaller enterprises .
The construction industry is also affected by labour shortages and supply chain issues , resulting in increased repair costs and delays . This is further complicated by contractors prioritising more profitable work over insurance repairs and extended timelines due to planning approval backlogs , all of which can put additional pressure on sums insured and business interruption indemnity periods .
The issue of underinsurance Recent research shows that the issue of underinsurance is not going away and is being caused by the UK ’ s lengthy inflationary environment with the cost of materials alone increasing by 36 % since 2020 and labour costs up seven per cent in just the last year .
The Royal Institution of Charted Surveyors recommends that a full reinstatement cost assessment is undertaken every three years , as well as when significant changes , such as an extension , are made to a building . The necessity of having an adequate indemnity period under your business interruption insurance is also a crucial factor in preventing underinsurance .
Recent statistics reveal that 80 % of properties in the North-East and Yorkshire are underinsured , a critical risk that can compound the financial impact of property damage .
Many businesses underestimate the true cost of replacing or repairing their property , leading to inadequate coverage . In the UK , the average clause in insurance policies plays a key role in this issue . This clause stipulates that if a business is underinsured , the insurer will only cover a proportion of the claim relative to the amount of insurance compared to the actual value of the property . For example , if a business insures its property for only 70 % of its true reinstatement value , the insurer will only pay 70 % of the claim amount . This can leave businesses with significant out-of-pocket expenses in the event of a claim .
Regulatory and legal factors Changes in regulations and legal considerations also impact the cost of property claims . New building codes and environmental regulations often require more expensive materials and compliance measures . For example , recent regulations aimed at improving energy efficiency have led to the adoption of costlier materials and technologies .
Preparing for the future As property claim costs continue to rise , local businesses must be proactive in managing their insurance and risk . While we , as your broking partner , cannot control the premiums set by insurers , we can help you find a suitable , cost-effective insurance solution for your business . Additionally , we can work with you to create a more robust risk management program to reduce the likelihood of a loss occurring .
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