According to the Department for Business, Energy and Industrial Strategy (BEIS), the cost of building materials surged by 23% in August 2021 compared to the same time last year. These price hikes are being driven by a shortage of key construction materials, such as cement, timber and roof tiles, which has impacted the construction industry all year.
What Is Causing the Shortages of Building Materials?
The same data also highlighted that material costs had increased 2.8% from July 2021, while the shortage continues to be impacted by a lack of lorry drivers in the UK. The RHA says the situation is now at a crisis point, with a shortfall of more than 100,000 drivers. This has been caused mainly by COVID-19 lockdowns and Brexit, which forced many drivers to return to their country of origin, with the vast majority not returning and not expected to.
In 2020, especially during the first lockdown, we saw building and home improvement activity take off. This also had a part to play in the construction materials shortage, thanks to the slowdown in the production of materials from some EU factories which meant supply chains were stretched already. Added to this is the increased cost of transportation and salary increases for construction workers, which is reported to have inflated by 11% in the three months to July 2021.
What Do the Building Material Cost Increases Look Like?
It is safe to say that the rise in building material costs has been significant, with government data suggesting that the biggest increase has been for imported plywood, with the wholesale price jumping by 82%. Other essential item costs also climbed staggeringly, including fabricated structural steel (65%), planed wood (64%) and steel concrete reinforcing bars (59%).
- Timber – Imported sawn or planed wood cost 74% more in August than it did in August 2020.
- Steel – Fabricated stainless steel cost 74.8% more in August than it did in August 2020.
- Chipboard – Travis Perkins raised the price of chipboard by 10% in May.
- Paint – The costs of paints and varnishes are up by nearly a third.
- Cement – Cement prices have risen as much as 30% and in June, Travis Perkins said the price of bagged cement would rise by 15%.
Rising Rebuild Costs – Avoiding Underinsurance
Aside from having to spend more on building materials and wait longer for them to be delivered, what do the price increases mean for those working in the construction industry? In a nutshell, if the materials you use to build are more expensive, the cost to rebuild if something happened would also be higher. With that being said, you need to review your buildings, contents, stock and business interruption indemnity periods to ensure that you are insured for the current amount and to avoid being underinsured in the event of a claim.
Insurers already have underinsurance high on their agendas, with a recent study finding that 84% of commercial properties are either over or underinsured. This is due to businesses not considering the associated cost of a rebuild or being insured for an outdated sum altogether.
Underinsurance can have far more severe consequences. Insurers adopt an approach they call the “Average Clause”. This means that if your commercial property is insured for £500,000, but the actual cost to rebuild in the event of a major incident is £1,000,000, any insurance claim you make for the property risks being reduced by the proportion of underinsurance – in this case 50%. This means that you would have to find £500,000 of your own money to cover the costs associated with the rebuild in this instance.
The increased costs of building materials may have an impact on your rebuild costs, machinery, plant, fixtures, fitting replacement and potentially stock. Therefore, we would suggest that you carry out reviews on your sums insured with your insurance broker on a regular basis.
Having a professional valuation completed would be advantageous. Thomas Carroll have partnered with Rebuild Cost Assessment Ltd (RCA Ltd) to be our sole providers of rebuild valuations. For properties where the rebuild cost is less than £10m and if the property is not either Grade I Listed or Grade II Listed, it is now possible to gain a desktop survey undertaken by a RICS qualified surveyor for a fixed fee of £140 inclusive of VAT. The report will be provided to you within approximately 7 days of payment. Take advantage of this to protect your business against underinsurance and use code TC20 for a discount.
Given the delays in obtaining materials, we would also suggest that you look at the indemnity period on your business interruption cover, as it may be worthwhile extending this period to ensure that you have the maximum protection. Your insurance broker will be able to discuss this with you and provide assistance.
Can We Help?
To discuss your insurance cover and avoid underinsurance, please contact your Thomas Carroll Account Executive today or get in touch with our team by calling 02920 853788 or emailing email@example.com.