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Are your clients' construction projects adequately insured against inflation?

It is crucial for your builders risk clients to ensure that their construction projects are adequately insured, particularly in a high inflation environment. 

Ensuring adequate limits

Inflation in the US reached levels not seen in over 40 years¹; therefore it is important for your clients to assess its impact on their construction projects.

In the event of a total loss near the end of a client’s project, an insufficient limit could result in the bankruptcy of their organization. The biggest risk that inflation poses to your clients is having a limit of insurance that is too low. The majority of construction projects are now taking longer than originally estimated and as the construction period increases, the potential impact inflation can have on required limits becomes greater.

Your clients' builders risk policies

If there is an increase in the cost of construction during the course of a client’s project, it is imperative that you notify your builders risk underwriter and request for an increase in limits, which can be applied subject to your their approval. The additional premium required to increase limits is nominal compared to the ramifications of an underinsured project. If a project is adequately insured, it will eliminate any potential coinsurance penalties and the financial security of your client will be protected.

What happens if a construction project is not completed on time?

It is common for construction projects to take longer than originally anticipated. This usually requires a term extension to your client’s builders risk policy, which could be e.g. from 1 month up to 12 months in addition to their policy’s term length. It’s important to stay in close contact with your clients to check the progress of their construction projects. If a delay is expected, get in touch your underwriter to request for an extension as far in advance as possible.

What is causing this higher level of inflation?

There are a number of factors that are currently driving inflation. One factor is supply chain issues following the COVID-19 pandemic. Strong consumer demand, worker shortages and even the Russian invasion of Ukraine are additional factors that have impacted inflation. As a result, labor and material costs have increased significantly in the last 12 to 18 months.

Be sure to speak with your builders risk clients to ensure that they have appropriate insurance limits in place for their construction projects. As highlighted in this article, there are a number of factors that need to be considered.


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1Trading Economics,