Exploring a future look at reconstruction cost trends

September 26, 2023 / 2 min read

Profitability pressures continue to mount for the property insurance market. The pandemic and increasing environmental factors have had a significant effect on building costs:

Inflation reached a 40-year high in 2022.
Lumber reached a record breaking 167% year-over-year increase in 2021.
A retiring workforce and erratic catastrophe-driven demand is straining the labor market.
Lumber mill shutdowns and material delays are causing supply chain delays.

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Profitability pressures continue to mount for the property insurance market. The pandemic and increasing environmental factors have had a significant effect on building costs:

And these environment influences may have further impacts. For example, high inflation may lead to drastic costs increases from the time ground is broken until a project’s completion, otherwise known as build time. And as build time elongates, reaching a 50-year high for both single-unit and multi-unit buildings, cost pressures worsen. According to the US Census Bureau:

Average timelines for residential structures have gone from 6 months in 2000 to 8.3 months in 2022, with owner-built construction lasting for 12+ months.
Average timelines for small businesses have increased from 12 months to 18 months.

To put that in perspective, in this environment, a homeowner with a small kitchen fire with smoke damage could be out of their house for 11 months and face a bill that’s up to 80% higher than the estimate.

The volatility of the construction market has caused unprecedented cost increases, making it difficult for insurers to forecast premiums and manage claims. However, Verisk’s latest innovation for the market may bring clarity towards underwriting decisions.

A future-focused look at trends

To help insurers navigate the increasing complexity in the market, Verisk has developed the Market Expectations Index for 360Value^®. Combining extensive data sets with analytic expertise and econometric methods, Verisk has produced a future-focused look at reconstruction trends.

The Market Expectations Index provides 3-, 6- and 12-month outlooks for residential and commercial structures. Indicators for 5 key components that that provide early signals for reconstruction costs are used in calculations, including: lumber, roofing, concrete, drywall, and labor.

Confidence scores are also available to better understand the reliability of the data. Indexes are updated quarterly to reflect changes in the economic and construction landscape.