Part of Homeowners Insurance Cost Rise Explained — Dramatic Increases in Reconstruction Costs

Trish Hopkinson heads up Verisk’s 360Value. She, and her team, recently looked at a decade of residential and commercial reconstruction costs. Nationwide between October of 2014 and October of 2024, residential reconstruction costs, materials and labor, rose 63.7%.

She said as you know, “Rising reconstruction costs as such can make it more expensive for insurers to pay claims for property damage and increase policy premiums.”

Overall, the largest increases between October of 2014 and 2019 were in the PIA Western Alliance states of Washington, Oregon, Nevada and Idaho, and in Kentucky. While the average nationally in that time frame was 19.8%, these state saw hikes of 12.6% to 26.9%. 

Nationally, residential construction costs in the five-year period between October of 2019 and October of 2024 averaged 43%. At the individual state level they rose 34% to 44.9% with the PIA Western Alliance states of Montana and Idaho, and Rhode Island, Utah and New Hampshire having the largest increases.

Commercial reconstruction costs looked much the same. They have jumped 58,4% since October of 2014. They rose 16.6% nationally from October of 2014 to October of 2024 but the PIA Western Alliance states of Washington, Oregon Nevada and Idaho, and Minnesota had increases ranging from 11.6% to 25%.

National commercial reconstruction costs looked much like residential costs with an average increase of 58.4 percent since Oct. 2014.

In the first five years of the studied decade, lumber costs rose 10x from 3.9% and in the last five years of the study, it rose 39.9%.

The bottom line is that the PIA Western Alliance states of Washington, Montana, New Mexico and Hawaii, and Utah were impacted the most in that decade. Washington, Montana and Utah saw the highest rise in lumber costs at over 50%.

“Over the past 10 years, we have seen a dramatic increase in reconstruction costs. In particular, the pandemic had a significant effect on building costs, reporting just over a 25 percent average increase for both commercial (24.3 percent) and residential (25.9 percent) costs from March 2020 through May 2023,” Hopkinson said. “This trend slowed after the pandemic but the impacts of inflation, labor market strains and supply chain delays still lingered — between April 2023 to October 2024 both commercial (12.4 percent) and residential costs (10.7 percent) continued to grow, averaging an 11.5 percent increase.”

The PIA Western Alliance state of Alaska, and Iowa, Indiana, Pennsylvania and Kansas saw the smallest increases.

Veriski’s report also noted going forward we can anticipate growth rates to be more like they were before the pandemic. Prices will go up between January of this year until July at about 2% for residential reconstruction and 2.2% for commercial reconstruction.

Source link: Insurance Journal — https://bit.ly/41xCaBR