December 21, 2020
During these uncertain times, one thing is for certain. The cost of materials and labor are rising sharply due to supply and demand . We want you to understand how extraordinary recent events are impacting insurance-to-value calculations so that you are adequately protected. Proper valuation is critical to ensure that there is appropriate coverage in the event of a loss.
Why are costs rising?

  • Prices in construction materials are rising. On a quarterly basis, insurance-to-value is adjusted to keep current with changing costs in building materials and the construction labor market.
  • This year, the fourth quarter adjustment is larger than in previous quarters, and is resulting in replacement cost estimates noticeably larger than previous quarters.

Key factors driving these increases:

  • Total reconstruction costs, material and labor costs, increased 9.2% from October 2019 to October 2020.
  • A 5% increase in total costs occurred in the third quarter of 2020 alone.
  • Lumber costs increased 60% during this time due to high demand and supply shortages related to the pandemic and U.S. tariffs on Canadian lumber.

Impact of catastrophic events:

  • These abnormal cost increases are due to heightened demand emerging from an especially active year for catastrophic weather events, and reduced material production due to COVID-19.
  • A total of 63 catastrophic loss events occurred in 2020, including tornadoes in the Midwest, wildfires in the West, and hurricanes in the Southeast.
  • The demand for building materials and labor created by these catastrophic loss events, combined with reduced capacity due to COVID-19, are resulting in significant cost estimation increases to stay current with market conditions.

This Quarterly Cost Update for 2020 report from our partner, Selective Insurance, analyzes the causes of the increased cost adjustments made to our estimation program.

Should you have any questions about your coverage, please contact your ACBI representative via email or at 203-259-7580.