Why are property premiums are increasing
There are a number of factors involved, but the two main ones are the cost of rebuilding or repairs as material costs increase and rising inflation
Building costs have shot up due to inflation, the rising costs of materials, impacted by global shortages of materials and supply challenges caused by BrexitT. In addition, the impact of the conflict between Russia and Ukraine, where 13 per cent of the UK’s steel imports are sourced, has led to price increases. There have also been steep rises in the cost of fuel, hence transportation costs escalating, combined with an increase in demand.
Logistics issues resulted in unprecedented shortages, delays and ultimately increases in prices of materials across.
Going green is costing money
Regulation changes introduced by central government in relation to decarbonisation and ventilation to help the UK reach its 2050 net-zero targets but there are also increasing costs.
Inflation is rising and according to the Consumer Prices Index, hitting 9.4% in June of 2022; the highest rate since records began. KPMG forecast average inflation over 2022 at 8.1%,
Cost of materials
The overall cost of materials is also rising. Figures from the BCIS Materials Cost Index show costs at a 40 year high and indications are that costs of raw materials are expected to more than treble in 2022. Add to that the chronic labour shortage caused by Brexit and Covid and supply chains are in crisis. According to data from the CII, UK insurers are looking at an increase of 9.6% to cover rebuild cost inflation.
Climate change means more unpredictable and severe weather events. Insurance losses for Storm Eunice alone (February 2022) are predicted to be around £200-£350 million. When insurers are unable to predict future risks, reinsurance terms are harder to negotiate, with the costs being passed on to property owners. And it’s not just losses in the UK that impact on loss ratios.
Changing methods of construction and design
The evolution of construction methods is also making an impact. Modern buildings are less able to withstand fires, floods and storms. Plus, the trend for open plan living and working makes it harder to contain any fires.