Understanding inflation's effect on commercial property risks and valuations

QBE's Charles Greer highlights what factors risk managers need to consider given today’s rapidly changing economic environment.

 

Inflation is driving up the cost of everything from food, gas and basic necessities to vehicle replacement parts and construction supplies. It has risen just over 9% as compared to a year ago, climbing 5% in June alone.

Commercial property insurers are not immune to these impacts, and inflation has been a key driver in the high costs many are experiencing. Other stressors include large, catastrophic weather events, supply chain disruptions, labor challenges and the increased replacement costs for damaged buildings and equipment.

It’s more important than ever for businesses and organizations to understand their commercial property risks and ensure they are properly valued in the event of a loss.

In the latest Insurance Speak podcast, Charles Greer, vice president-large property leader at QBE North America, provides some context for these issues, highlights what factors risk managers need to consider and explains how inflation is affecting valuations.

Greer shares that rising material costs are among the key drivers, and goods such as lumber and drywall are in short supply. “We’re seeing rising prices and supply chain issues, as well as extended repair times. Labor availability is also a factor because contractors can’t get the labor to handle the repairs.”

Commercial property owners may not consider the impact inflation will have on their property values and find themselves underinsured in the event of a claim. “Property owners need to have adequate valuations to begin with, and with inflation, it’s even more crucial for people to have proper valuations,” he advises.

He also recommends that companies have backup plans for equipment and machinery failures since extra parts may not be available and that they extend their building marine coverage because of possible claims arising out of supply chain issues.

For more information on the factors risk managers should be watching and how they can ensure they have sufficient coverage, listen to the podcast above or subscribe to Insurance Speak on Spotify, Apple Music or Libsyn.

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