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Review Your Coverage Limits as Construction Inflation Continues

Review Your Coverage Limits as Construction Inflation Continues

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Many homeowners are at risk of being underinsured as their insurance coverage limits may have become inadequate due to the surging costs of home repairs and rebuilding costs.

Inflation and supply chain snarls have been driving the cost of building materials from lumber and steel to kitchen and bathroom fixtures. Additionally, labor costs have increased significantly in the construction sector, which faces a shortage of skilled workers — in turn driving up wages and also resulting in longer repair and construction times.

If your policy limits have not kept up with construction inflation, you could be underinsured in case of a total loss like a fire raging your home, and whatever the insurance doesn’t cover, you’d have to pay out of pocket.

Cost drivers

Since 2020, the cost of home construction materials has increased 35.4%, and labor has increased 30%, according to the American Property and Casualty Insurance Association.

About 82.5% of construction materials have experienced a significant cost increase since 2020, with an average jump of 19%, according to the “2023 Construction Cost Trends by the Numbers” report by construction cost data-tracking firm Gordian.

Gordian reports that prices have kept on rising significantly. For example, the following have increased in 2023:



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  • Steel: Up 22%
  • Wood and lumber: Up 16%
  • Concrete and masonry: Up 15%
  • Electrical conduit: Up 12%
  • Insulation: Up 11%

The cost of construction equipment — such as tractors, hoisting equipment and commercial trucks, and operating that equipment — has also been on the increase, up 5% on average from 2022. The majority of that cost increase comes from operating costs due to surging diesel prices, according to the Gordian report.

The cost of labor has also increased in the construction sector, up an average of 3.4% in 2023. But that was low compared to 2021 and 2022, when wages were rising closer to 10%.

That’s largely due to a significant labor shortage in the industry. The Home Builders Institute estimated in 2022 that more than 61,000 new hires would be needed each and every month to keep up with industry growth and workforce attrition, for a staggering total of 2.2 million new hires from 2022 through 2024.

Market experts predict that we’ll see continuing construction cost increases in 2024 and 2025 as demand remains high.

What you can do

We recommend that you contact us before your policy comes up for renewal to check its coverage limits, so we can help determine if they’re adequate to cover a total loss.

While homeowner’s rates have been increasing and you may not want to see them go higher, it’s vitally important that you get this right to ensure that your claim will be covered in full after your deductible. Anything less than that and you’ll be paying out of pocket for the difference if your limits are not enough to cover rebuilding costs.

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