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Update Your Insurance Coverage to Account for Inflation, Rising Building Costs

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inflation-insurance coverage-insurance-building costs

Amid high inflation and rising building costs, many homeowners may find they do not have enough insurance coverage to rebuild after a catastrophe.

David A. Sampson

President and CEO, American Property Casualty Insurance Association

High inflation has seemingly affected nearly every aspect of our lives — from buying gas and groceries to other basic goods and services — but, according to a recent APCIA/Harris Poll survey, many homeowners are unprepared for the impact inflation has on their insurance coverage. The survey reveals that a majority of homeowners may find they do not have enough insurance coverage to repair or rebuild their home if a major catastrophe strikes.

Inflation isn’t the only cost driver impacting insurance coverage. Building costs have also skyrocketed due to pandemic-related supply chain issues and an increased demand for skilled labor and construction materials following unprecedented natural disasters in the last two years. From December 2019 through December 2021, the price of construction materials rose by 44%. These trends are impacting post-disaster recovery efforts across the United States, leading to higher costs and longer reconstruction timeframes. Yet only 30% of insured homeowners have purchased more insurance or increased coverage limits to compensate for rising building costs, according to APCIA’s recent survey.

Ensuring adequate preparedness

It is critical that homeowners make sure they have the right amount and right types of coverage during this period of significant inflation. However, APCIA’s survey found that about two thirds of insured homeowners may be without key additional coverages, such as annual inflation adjustment coverage, extended replacement cost coverage, and building code/ordinance coverage, that can better protect them in these challenging market conditions. The cost of these optional coverages varies by company and risk level, so homeowners should talk to their insurer and shop around for policy and coverage options that fit their needs and budget.

There are other ways homeowners can act to be more financially prepared for a disaster. Homeowners should review their insurance policy annually, but only 36% of insured homeowners reported doing so over the last year. A policy review may include confirming that any recent upgrades or renovations, such as an upgraded kitchen or new room addition, are reflected in the replacement cost. Our survey found less than half of people polled indicated they updated their home insurance to account for recent renovations or remodeling during the pandemic.

It is equally important to create and update a home inventory each year, which can help account for your belongings in the event you need to file a claim. A home inventory is simple to create, yet only 20% of insured homeowners created or updated a home inventory less than a year ago. Twenty-five percent of insured homeowners have never created a home inventory.

With climate change causing more severe and frequent natural disasters, insurers are also urging homeowners to take steps to mitigate their property against potential damage. In 2020 and 2021, U.S. insurers paid out $176 billion for natural catastrophe claims alone, the highest total for a two-year period for natural catastrophe claims.

Providing peace of mind

As insurers, we’re focused on financially empowering our customers with the tools to protect the things that matter most to them — because that’s what matters most to us. A homeowners insurance policy is there to give you peace of mind that when the unthinkable happens, you have the coverage you need to pick up the pieces and rebuild your home.

Too often people overestimate their preparedness for natural disasters and other emergencies, and this can lead to gaps in preparedness and insurance coverage. APCIA’s survey shows that most insured homeowners are at risk of being underinsured amid high inflation and increased building costs. Insurers encourage homeowners to act quickly, before disaster strikes, to review and update their coverage and mitigate against potential damage.

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