BUSINESS HELPDESK HELP DESK


WILL RISING COSTS INFLATE INSURANCE PREMIUMS?


Alan Tattler of Specialist Risk Insurance Solutions, a BMF partner, has advice on maintaining cover and controlling costs


IN COMMON WITH the rest of the UK economy, the construction industry is facing level of price inflation not seen for over 40 years. In particular, material shortages following Covid and dramatic increases in fuel and energy prices stemming from Russia’s invasion of Ukraine have impacted builders merchants and suppliers.


BMF figures released in August this year show that, on average, the cost of building products and materials have risen by 10%-15% in the past year, with prices for certain materials far exceeding this. Timber increased by 50%, while the cost of OSB and similar sheet materials has risen by 100%.


Meanwhile, the rapid increase in wholesale energy costs has a direct effect on the cost of manufacturing steel, cement, bricks, blocks , glass etc. While forward buying and a mild autumn has helped to temporarily ameliorate the situation, there remain risks from a cold winter and ongoing Russian action to constrain energy supplies to mainland Europe.


Rising costs can also affect insurance cover and premiums, so it is worth knowing how your business can keep these costs down, whilst retaining adequate cover.


A full timber store is now potentially 50% more valuable than it was two years ago. These higher material costs may lead to insufficient cover for buildings contents and stock sums insured, and as a result your business interruption cover being inadequately placed. For example, a fire at your premises destroys your timber store. A claim is submitted under your material damage of business interruption insurance.


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The insurers assess the value of lost materials at £500,000, but the current sum insured is £250,000. As a result, the insurer proportionally discounts the settlement by the extent of under insurance (50%) and offers a settlement figure of £125,000, leaving your business with a balance sheet loss of £375,000. Higher stock values will also impact goods-in-transit insurance and crime/fidelity insurance as the stock becomes more attractive to thieves.


The impact of rising energy costs, leading to higher purchase costs and potentially resulting in increased turnover may also influence the level of business insurance required. For example, are increased costs translating to an increase in profits? Any change should be considered when arranging business interruption insurance, both in terms of the basis of this essential cover, and


the limit and indemnity periods selected.


It is important to adopt a proactive approach and work closely with your insurance broker to ensure your business has the appropriate level of cover in place. Key to this is conducting a thorough review of your insurance programme every year in advance of renewal to ensure your business is appropriately protected. While it is not generally necessary to obtain alternative quotations on an annual basis, a thorough review will ensure that your cover is fit for purpose and up to date with anticipated needs for the coming year.


Useful tips to keep insurance costs in check. • The insurance space can be complicated. Working with an insurance broker that specialises in your sector can be hugely beneficial


• Review your approach to risk management to ensure that it is representative of your current business. Efforts to improve the risk profile of your business will be welcomed by insurers. The better your risk profile, the more chance your insurance broker has of negotiating a lower insurance premium • Don’t shop around too much. There is a finite market of solvent, secure and suitable insurance companies. Multiple requests from brokers and on- line aggregators can affect an underwriter’s willingness to offer terms, making it harder for any insurance broker to secure quotes.


The best insurance brokers will support your business year-round, not just at renewal. Look to have a quarterly review or update with your broker and/or advise them promptly of any changes during the insurance period. BMJ


www.buildersmerchantsjournal.net December 2022


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