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Projected record-high prices for lumber products over the next two or three years could wreak havoc on the insurance-to-value calculations that brokers perform for their clients’ homeowner policies.
A December 2012 International Wood Markets Group Inc. report notes that an increased demand for wood in the United States, coupled with an overall tightening of the global timber supply, will increase lumber and panel prices to new highs in 2013 and record highs in 2014.
This ‘super-cycle’ for wood products – and its implications for brokers – was raised in an online posting by the Insurance Brokers Association of B.C. (IBABC)
“The prospect of having forestry and sawmills going at full capacity is great news for small towns throughout B.C.,” The IBABC says. “But the increased demand will likely mean higher prices for lumber wood products here at home as well."
Wood Markets 2013 is forecasting that export duties on Canadian lumber to the U.S. will essentially be at a ‘zero-rate’ for all five years of the forecast as compared to maximum duties of 5% or 15% (depending on the Canadian province) for most of the last five years.
Five-year forecasts on OSB and plywood also see strong prices, but not as high as what are in store for lumber. By comparison, the particleboard and MDF sector will see more limited growth, but higher demand and prices are also forecast in the report.
“Those increases could be reflected in the reconstruction cost calculations that brokers perform on residential dwellings to arrive at insurance valuations for homeowners' policies,” the IBABC says.
Many typical homeowners' insurance policies for owner-occupied homes include Guaranteed Replacement Cost (GRC) coverage. In other words, the insurance company will cover the full cost of reconstructing the home after a disaster, even if the cost to rebuild the home exceeds the insured’s policy limits.
“With some policies some conditions may apply, but in general, your policy will cover the cost to replace your dwelling and contents, with materials similar in type and quality to the original, as long as your dwelling is properly insured to its replacement-cost value,” IBABC notes. “Insurance brokers will review that insurance valuation with [clients] periodically to keep it properly updated.”
