Rising Construction Costs & The Impact
We’ve all heard it, seen it and felt it for a while now. Construction costs have been steadily on the rise for quite some time. The changes in supply and cost for materials such as plywood, lumber and steel has put many businesses at risk of being under-insured. An unexpected event will be stressful enough, without having a gap in your policy. A business can suffer unexpected insurable losses for many reasons including those “they’ll never happen to me” scenarios such as:
- Inclement weather or natural disaster
- Cyber security hack
- Fire
- Much more!
So, how exactly can being underinsured impact you and your operation?
Are My Limits Sufficient?
The co-insurance clause requires policyholders to insure their property for a specific percentage (generally between 80 -100%) of the current reconstruction cost. As the policyholder you determine how much of the risk, or share of the loss, you want to assume. Claim payments are calculated accordingly.
As construction costs change it is more important to understand the value of your property so that the cost to repair or rebuild does not fall on your shoulders. Being underinsured puts you at risk of not meeting the co-insurance clause which can be financially devastating. Claim payments are calculated according to the following formula:

Example
Co-Insurance Requirement: The building limit is $90,000, the value of the building at the time of loss is $100,000 with a co-insurance percentage of 90%. A small fire results in $70,000 worth of damage.
Option 1: You keep $90,000 worth of insurance on the building which allows you to receive the full $70,000 for repairs and/or damages.

Option 2: You only keep $45,000 worth of coverage on the building and therefore receive only 50% of the repair/damage cost ($35,000). You as the insured as responsible to cover the additional $35,000 in expenses.

As you can see this is not a straightforward concept, but it is very important when understanding your coverage. By understanding this clause you can start to ask your broker questions to ensure you meet any of these conditions set out in your policy. In the event of a claim, this clause protects you and helps us, the insurer, understand the value of your property.
Know Your Policy
Do you know if your policy can cover the current costs to repair or rebuild a building on your property? When was the last time you reviewed your policy with your broker?
It’s very easy to choose the lower amount of coverage to keep your insurance payments down thinking that will be enough. When reviewing or setting up a new policy we may skim over the various add-ons and additional coverages. We can easily underestimate the coverage and value these small coverages can make in the event of a claim. If premium cost is a concern, consider other options such as increased deductibles to reduce costs.
Insurance Terms Cleared Up
These two terms can have a big impact on the coverage your policy provides, and we want to provide a bit of clarity around them.
Named Perils
An insurance policy that only provides coverage on losses due to specific hazards or events named on the policy.
Types of named perils include: fire or lightning, explosion, smoke, falling object, impact by aircraft or land vehicle, riot, vandalism or malicious acts, water escape, rupture, freezing, windstorm or hail, glass breakage, transportation, and theft.
Broad Form (or All Risk Coverage)
An insurance policy that provides coverage on all losses incurred to your insured property unless specifically excluded. Basically, instead of mentioning which perils are covered, everything is assumed to be covered (again unless otherwise specifically excluded). Broad Form provides broader coverage than named perils, however not everything is covered and what is covered can vary from company to company
Broad Form Coverage will respond to a wider range of events and naturally will cost more than Named perils. If you are unsure about which type of policy you have, reach out and have a discussion with your broker.
How Much is Enough?
The whole point of insurance is peace of mind, keeping yourself fully protected to get you back on your feet in case of an unexpected event. Contact a Josslin Insurance broker to review your current policy and ensure that adequate coverage is in place.
Here are some questions you may consider asking:
- Are my buildings insured to the actual rebuilding cost?
- What type of policy (Named Perils or Broad Form) do I have?
- In the event my business has to shutdown due to an insured peril, can I cover all my expenses?
It’s always best to discuss with your broker your unique situation and what, if any, changes need to be made. In the event of a loss, you might be happy for the changes and additional protection provided.