A few years after the onset of the pandemic, construction material prices remain elevated. And in the event of a total loss or damage to a structure, insurers could be unprepared for cost shifts during rebuilding.
In the decades when material and labor prices shifted just 2 percent to 4 percent a year, it was easy to accept “good enough” data and the approximate reconstruction cost estimates (RCEs) that would result. But as the pandemic triggered disruptions in supply chains and worker shortages, prices for some materials and labor soared at triple-digit annual rates.
Even after some prices retreated from pandemic highs, Verisk data shows the cost to rebuild a property is still more than 11 percent higher, on average, than it was pre-pandemic.
Add rising fuel prices to the mix—up 113 percent since 2006—and it’s apparent that prices even a few months out of date may not be current enough to rely on in a volatile, inflationary marketplace.
A climate of ever-changing prices
Verisk closely monitors price surges for materials and labor categories. Key noteworthy trends include:
- Lumber—a persistent cost driver in recent years—has increased more moderately over time
- Lumber-derived finished goods such as interior trim composite continued to surge even as the raw material costs fell, reflecting a more labor-intensive production process.
- Commercial building reconstruction costs have borne the brunt of rising prices for concrete.
Total reconstruction costs remain high amid continuing inflation, elevated fuel prices, and increasing natural catastrophes, as seen with Hurricane Ian. Verisk data shows the cost to rebuild a property is still more than 11 percent higher, on average, than it was pre-pandemic.
Tracking monthly pricing changes
Monthly pricing data makes the difference. More frequent updates for construction materials and labor, a change Verisk made to its 360Value® ITV solution, came in response to the meteoric rise in prices during the pandemic.
While the price curve may still bend upward, monthly refinements to RCEs can soften the huge spikes that may accompany less-frequent adjustments. Smaller changes with each update may mean fewer surprises for insurers and agents quoting new or renewal policies. And applying RCE data that’s updated monthly can help maintain alignment with current market prices for better protection when claims occur.