Inflation and the Effects on Construction Insurance

The UK inflation rate hit 9.9% in September 2022 and is predicted to reach 18% during 2023. The cost of living crisis is seldom out of the headlines and the ramifications of the war in Ukraine, global supply issues and shortages of key raw materials and components are being felt across most industrial sectors. In a survey, 78% of SMEs said they see the cost of living crisis as their greatest threat but how many have actually considered what it means for their insurance protection? 

The temptation could be to forego some covers, reduce cover limits. Whilst this creates greater exposures at any time, it is a particularly dangerous strategy during a time of rampant inflation. Even as things stand, many types of business should be reviewing their policies’ sums insured and considering whether to increase them, not decrease them. 

This is particularly true for any construction-sector business. Between May 2021 and May 2022, the All Work construction material price index rose by a staggering 27.2%. The value of contracts underwritten by Construction All Risks and Erection All Risks policies is particularly affected and insured's could find themselves underinsured, unless they review their cover. The ramifications of being underinsured are profound, putting a business at risk of having a claim completely turned down, with cover cancelled; or only being paid out partially, in a ratio linked to the degree of underinsurance.