The following article has been supplied by REInsurePro.
In recent years, the construction industry has faced unprecedented challenges. Labor shortages, supply chain disruptions, and high inflation rates have reshaped the market, causing construction costs to skyrocket. As we examine the causes of these increases, it becomes evident that repercussions extend far beyond construction sites. Insurance carriers now face financial challenges that have forced them to reevaluate their strategies for maintaining a sustainable business.
Labor shortages: One of the primary drivers behind rising construction costs is the persistent shortage of skilled labor. Finding and retaining skilled workers has become increasingly difficult for many businesses, but especially construction companies. With demand far surpassing supply, companies are forced to offer higher wages, significantly impacting the total cost of a project as labor alone typically accounts for about half of overall expenses.
Supply chain issues: As a global pandemic, COVID-19 was the initial cause of supply chain disruptions. Factories around the world were forced to close, resulting in delayed production of construction materials. Because essential materials were scarce, prices skyrocketed. Subsequent large-scale natural disasters, such as wildfires and hurricanes, have contributed to continued supply and demand challenges faced by the construction industry.
Inflation: The persistent rise in inflation rates over the last few years has significantly diminished buying power. So, in addition to contending with higher costs for labor and materials, the dollar does not stretch as far as it used to. Similar to how labor shortages have resulted in increased wages, inflation has also made an impact. As the costs of essential goods and services continue to climb, construction workers feel the need to demand higher pay to keep up with the increasing cost-of-living. Unfortunately, this creates a seemingly endless cycle of rising costs.
The repercussions of rising construction costs have reverberated through the property insurance market, prompting insurers to reassess their strategies for maintaining financial stability and a healthy book of business. To ensure the sustainability of their business, many carriers have taken a threefold approach:
The surge in construction costs is not a challenge felt only by builders; it ripples across industries and has heavily impacted the property insurance market. At times like these, insurance agents play a pivotal role as trusted advisors. Agents should aim to provide clients with customized solutions and effective risk management strategies.