Is this a familiar customer question? "I got my renewal today and noticed that my premium went up along with the amount of coverage on my home / building. I didn't ask for an increase in coverage. Why did my premium increase?" Many home and business owners don't understand the forces that drive up property-insurance premiums. As we reported last year, rising construction costs - which still outpace the annual inflation rate - can impact both the amount of coverage and the premium.

Customers are increasingly at risk. Recent studies show that two-thirds of homeowners and even more business owners are underinsured. As an independent agent or broker, your professional counsel is invaluable in explaining why rates for building limits on insurance policies go up - even when customers do not increase coverage.

“The primary drivers for the latest increase in reconstruction costs were materials. Marshall/Swift & Boeckh reported the following percentage increases from Jan. 1, 2004 to Dec. 31, 2004:

Drywall costs were up more than 14 percent

Plywood was up more than 21 percent

Dimensional lumber (2 x 4 floor joists, roof trusses, etc.) was up 23 percent at the end of 2004 when compared to its cost at the beginning of 2004

Increases in labor costs were much lower than those for materials. Annually, wages for carpenters, electricians and painters increased by only 3 percent. Overall, statistics from Marshall/Swift & Boeckh put the nationwide average increase for 2004 at 5.8 percent.

"While it varies depending on the source you use and the area of the country involved, we currently are seeing construction costs for materials and labor increase between 6.5 and 8.5 percent," notes Bob Johnston, Safeco Claims. "On some commercial properties, we're seeing increases as high as 10.5 percent, depending on construction class and geograhic area. This concern should be on the minds of insurance professionals everywhere."

Other factors influencing construction industry costs are the high demand for materials, influenced by attractive mortgage-lending rates and the fuel costs of transporting building materials from supplier to users.

Safeco keeps a watchful eye on the construction industry and uses current data to evaluate property values. We pass it along to you in many forms so you can accurately analyze risks, whether new or renewal accounts, and help your customers determine appropriate coverage amounts.

"When it gets right down to it, agents need to remind customers that the whole purpose of insurance is to help them rebuild after a loss," Johnston says. "Customers need to make sure their homes and businesses are insured to value. It starts with accurate valuation at the point of sale and then ongoing annual reviews. They also need to know that Safeco's claims service differentiates us from the competition when a loss does occur."

Safeco Editor's note: Some copyrighted information in this article was used with permission of Marshall & Swift / Boeckh, LLC © 2005.

This news release is brought to you by the commitment and assurance of the A.D. Dern Insurance Agency, Inc., keeping you up to date and aware of the ever changing California Insurance market place. Continue to check back with us for other insurance articles of interest.

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