Building Inflation & Increases to Automatic Indexation
The cost of repairs and rebuilding and general building inflation has become a major topic of conversation in the insurance industry over the last few years with continued increases starting in September 2021. The insurance industry has seen rapid increases in claim reserves during 2022 following the devastating impact of cyclone Seroja in Western Australia and subsequent significant claim events in the Eastern states. Recent communication from farm insurer, Allstate said that many farmers have struggled to replace vital farm structures due to the increased cost of rebuilding. Many factors including lack of assessors and builders on the ground combined with shortages of materials and spiraling labour costs contributed to the delays and in some cases resulted in severe underinsurance.
CoreLogics Cordell Construbtion Cost Index (CCCI) for Quarter 3 2022 showed national residential construction costs increased at a record rate in year to September 2022, the highest annual growth rate. According to the national CCCI, residential construction costs increased by 11.0% over the 12 months to September, exceeding the 10% annual rise recorded over the 12 months ending June 2022, while the quarterly figure of 4.7% was higher than the previous quarterly figure of 2.4%. The most recent quarter’s figure was also above the 3.8% surge recorded over the three months to September 2021 when lockdowns were having a more significant impact on domestic supply chains.
According to the Australian Bureau of Statistics report titled Producer Price Indexes, Australia released 28/10/2022 for the September 2022 quarter, Home Construction prices rose by 20.5% over the preceding 12 months.
Many insurers are increasing property sum insured automatic indexation rates and we strongly encourage all clients to review their sums insured to avoid an underinsurance issue at claim time.
If you’re concerned your property sum insured may not reflect the true cost of building inflation, please contact us here.