Businesses across the UK are feeling the pinch amidst the current inflationary environment. And unfortunately, it’s only predicted to get worse. That’s why we recently assembled a team of experts to help you understand the risks of inflation and the potential impacts it could have on your insurance, claims, and risk management programmes.
Read the discussion points, key takeaways and audience questions below or watch the full discussion on YouTube.
Property Reinstatement Values
- supply chain shock
- RICS/BCIS general building cost index
- material pricing increases
- labour and material shortages.
- All property types, commercial and residential are affected by increasing property reinstatement values – modern buildings are not immune.
- Insurers are generally/automatically including index-linking to policies at renewal (currently 8-12%) but inflation is increasing at such a rate that there is still a risk of underinsurance.
- Property owners must review their sums insured and take a realistic approach to rebuild costs - consider recent work and the costs associated. A rebuild cost assessment should be explored.
- Be realistic with lead in time for reinstatement works. With a reduced number of contractors working in the area it’s going to lead to lengthy lead-in times. Consider the time it takes to demolish a building and clear the site, redesign the building, engage with a contractor etc. Revised rebuild periods must also be fed into business interruption policies.
Recovering from a major event in a high inflationary environment
- business interruption insurance overview and misconceptions
- labour shortages and lack of materials
- supply chain disruption and contractor solvency
- property claim disputes.
- Business interruption insurance cover starts from the time of the property loss through to the business recovering to pre-loss trading or the maximum indemnity period is reached - whichever occurs first.
- Labour shortages, supply chain disruption, contractor solvency and many more inflationary-related issues will add to the time a business takes to recover from a major loss.
- The impact of adding just 6 months to the rebuild period can create a significant gap in your insurance cover. It’s vitally important to discuss with your insurance broker the challenges around indemnity periods.
Payroll and employment costs
- how inflation is impacting employee benefits, health and wellbeing
- salary sacrifice schemes associated to pension arrangements
- Health and Social Care Levy 2022
- increasing disposable income without increasing pay.
- Salary sacrifice associated to pension arrangements can help employees improve financial wellness, increase their disposable income and aid stress management by reducing financial burdens.
- Employers can benefit from salary sacrifice through improved employee welfare, increased employee engagement, a reduction in staff turnover and employer NIC savings.
Impact of inflation on claims
Real life case studies on claims surrounding:
- business interruption.
- Inflation has adversely impacted claims.
- Check your declared values and sums insured.
- Consider policy extensions such as Additional Increased Cost of Working (AICOW).
- Cost of domestic rebuild now running at YoY 11% increase.
Your inflation questions answered
Watch the full discussion for all the questions put to our expert panel.
Does a Rebuild Cost Assessment provide residential property assessments as well as commercial?
A Rebuild Cost Assessment is available for both residential and commercial properties. At Marsh Commercial, we can value any residential property with a current sum insured of £5million or less by desktop unless they’re Grade 1 or Grade 2* listed where we’d offer a site valuation.** Desktop valuations can be completed within approx. 12 working days. Site valuations are always quoted depending on what is required. They are usually completed in approx. 4-5 weeks.
Is it possible to assess listed commercial properties as a desktop rebuild cost assessment and how relevant is the listed status to the rebuild cost?
We can assess Grade 2 listed properties, both commercial and residential with a desktop valuation. However, Grade 2* and Grade 1 would require a site valuation survey.
The listing is very applicable to the valuation. These buildings are protected for a reason as they have considerable local value. The materials used and internal elements (that would also be listed), all feed through into the rebuild valuation. This would cause the rebuild cost to be higher than if it wasn’t listed.
A common misconception is that if a listed building is completely destroyed it doesn’t have to be replaced as it doesn’t exist anymore. So in the event of a total loss, there would be a different result. However Historic England will insist that the build is replaced as closely as possible to its original design. Whether that’s a commercial or residential building. It does carry significant financial risk with it, and it’s certainly an area where we see a lot of underinsurance. Getting a rebuild valuation on it is hugely important.
What does average clause or condition of average mean?
The average condition is sometimes also referred to as the underinsurance condition. It enables an insurer to effectively reduce a claim payment in the event of them being able to prove underinsurance. For example, if an insurer can establish the fact that you’re underinsured by 20%, they will reduce the claim payment by this amount.
What are the typical % increases in property reinstatement cost assessments?
We are seeing some very considerable increases in reinstatement values. This is partly due to the changes in building regulations of 17% over the last year has taken the industry by a bit of surprise.
If salary sacrifice is so easy, why isn’t everybody doing it?
Pre October 2012, when auto-enrolment was introduced, the majority of businesses did salary sacrifice. In the pre auto-enrolment environment, the reality was that roughly 25% of UK employers had a pension scheme to which the employer would make a contribution.
When auto-enrolment came in, there was an influx of new entrants to the pension’s community who had never been used to making pension contributions. The main reason why employers had historically done salary sacrifice is for the employer saving – National Insurance saving. When auto-enrolment was introduced in 2012, contributions for a number of years, for employees, were only set at 1%, so the savings were minimal. Therefore people didn’t go through the process of implementing it.
Since April 2019, employee contributions were at a level of 5%, which is why we’ve seen a huge uplift in the take up of salary sacrifice schemes.
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Inflation risks roundtable
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