Building materials cost has taken a drastic jump. This is due to a materials shortage, staffing problems, and a global supply chain mess. The shortage is slowing down construction job completion and increasing construction costs.

The UK has the 6th largest global construction market outside the United States. The UK is favorable to U.S. engineering and architectural firms. Construction materials from the U.S. have a reputation in the UK for reliability and quality.

Heating ventilation, air conditioning and refrigeration, insulation, and lighting are U.S. products that play an important role in the UK construction trade. The impact of building materials cost and availability in the United States is one factor impacting construction costs in the UK.

In the U.S., the prices of steel and lumber have increased between 20% to 25%, and softwood lumber increased 73%. These price increases not only impact the cost of construction, they also affect insurance claims handling. Adjustments must be made regarding coverage limits and loss settlements.

Steel Price Industry Impact

According to BOS Manufacturers, the continuous increase in raw material costs is having an impact on the price of steel. The price of iron ore almost doubled in price between March and December 2020, rising to $160 USD/DMT. There was a 45% increase in Metallurgical Coke. While the levels of scrap have drastically dropped, the price increased during 2020 by about 70%. 

History shows that when the price of steel rises, the cost of rebar also goes up by a similar percentage. This trend is happening now.

Not a Short-Term Problem

Property industry trends indicate a substantial difference between the cost of building materials and the prices contractors are locked into. This is likely to continue for an extended period of time. Despite material shortages, construction orders in the UK grew at the fastest rate in 24 years.

The increase in construction activity is approaching pre-pandemic levels in housebuilding. Covering warehouses, office blocks, commercial construction, and factory buildings also have substantial growth.

While new orders are increasing, shortages of materials are causing long wait times for supplies. The combination of demand and supply shortages creates an increase in pricing.

The pandemic created a building materials shortage due to factories, fabrication facilities, and mills shut down. Workers did not return to reopened production facilities, resulting in the inability to operate at full capacity. The factories also have problems with suppliers and freight haulers not having the staff to meet their demands.

Products normally imported from China and northern Italy have production and shipping delays. This includes appliances, kitchen cabinets, tile flooring, and even elevators for commercial buildings. A shortage of shipping containers, trucking capacity, and port space impact the supply chain.

All of these demands have a strong impact on the insurance industry. Claims abound for everything from business interruption, to supply chain issues, and changes in liability claims.

This compounds the requirements of the Enterprise Act of 2016. The act requires the processing of claims and payments in a prompt manner, affecting insurance handling.

Trade Policy Tariffs and the Supply Chain

The UK obtains 92% of its softwood timber imports from the EU. Timber prices in the UK rose 18% in the year following the EU referendum due to sterling depreciation. They are now 31% higher than they were prior to the referendum.

The construction tariffs are low, but the impact of goods and drivers being slowed down is significant. It is important to understand how the supply chain impacts your business.

Sixty percent of construction products come from the EU. You need to review how many of your supplies are made in the UK, what you import from the United States, and what you receive from the EU.

The next step is to contact your key suppliers to determine how their supply chains are being affected. You also need to consider how much stock you have on hand and what percentage of that is allocated for use.

You may need contingency options for your supply chain. This includes port flexibility, non-EU suppliers, and alternative supplies.

The new relationship between the UK and EU post-Brexit is creating delays in receiving imports from Europe. This is further impacted by tariff limits in the steel sector, which have the potential of rising by 25% each quarter.

Some try to purchase steel in bulk early in the quarter to avoid price increases. Bulk buying creates shortages. Steel decking has a delay of up to 12 weeks.

Claims Inflation

The increase in construction and reconstruction costs impacts the value of your insurance policy. If you suffer a loss and have not made adjustments to your policy coverage, you may find yourself severely uninsured. 

If you make improvements to a property, the value of the building increases. This means remodeling the kitchen and bath, adding space, or upgrading electrical and plumbing. It also includes new windows or exterior building improvements.

Even without renovations or upgrades, it is important to evaluate your insurance coverage and risks every year. This confirms you have sufficient coverage for any necessary repair or replacement costs. There are five main factors driving claims inflation on commercial property.

• Workers wages have seen a 6% increase
• Skill shortages are an increasing problem since the UK left the EU
• Increase in cost of building materials due to depreciation of the pound and international market demand
• Damage costs increasing as modern construction methods cause fire to spread more rapidly
• The Federation of Master Builders has a 9% increase in brick cost, 8% increase for roof tiles, and 16% increase for insulation
• Increasing fluctuation in international exchange rates
• 8% increase in theft
• Supply chain interruption
• Increase in flooding and extended periods of extreme winter rainfall

The commercial property insurance market experienced a 55% increase in claims between 2015 to 2019. The commercial property insurance market experienced a 55% increase in claims between 2015 to 2019. Adjustments in the construction industry impact claims. You need to partner with a claims service provider that understands the impact of claims inflation when you incur a loss.

Insurance Claims Management

When you suffer a loss the processing of your insurance claim is time-consuming. The impact of building materials cost affects your ability to receive a sufficient insurance payout to cover your loss. Gallagher Basset is a premier multi-line claims service provider assisting clients throughout the world.  

Having a supply chain to support your demand is what you get from GB Technical. We offer a wide range of services in claims handling, beginning with the first notification of loss to settlement and subrogation.

Our capacity model provides us with the ability to operate at 50% to 60% capacity while ensuring that visits take place within 24 hours. Video technology site visits can be finished within hours. With more than 20 years of experience, the Gallagher Bassett team will manage everything from highly technical loss adjusting, major and complex loss capacity, business continuity services, and claims management.

Send us an email to let us know what we can do to help your business.