We love a good insurance term us Insurance Brokers, don’t we! Day one uplift, declaration linked policy, average; the list is endless.
I have to say, Index Linking is probably the most understated and underutilised automatic mechanism to protect against underinsurance.
Ignore this at your peril in the current economic climate; unless you have been a hermit for the last two years, it cannot have escaped your knowledge that the cost of EVERYTHING has rocketed recently.
It has never been more important to scrutinise the values you have at risk with your broker. If you do nothing else, at least think about Index Linking!
In simple terms, Index Linking refers to a Property Insurance condition which increases the policy sum insured at each renewal to consider the inflationary impact of changes to building costs, such as materials or labour charges.
We often come across insurance programmes that haven’t been index linked for years (decades sometimes!). This manifests itself when clients sit down with their broker for annual review and agree, “not much has changed this year”.
Once in a while this is fine, but the compound affect of ignoring this issue and/or not applying indexation can have devasting affects in the event of a claim.
(It is important to point out, your sums insured need to be accurate in the first instance – refer to previous blogs on underinsurance and average!)
Insurers Index Linking amount is influenced by the Building Cost Information Service Materials Costs Index (BCIS). They have reported that price rises are hitting a 40 year high.
Why though?
It is a fact that labour and material costs will continue to rise into 2022. Additionally the following has contributed:
- Covid-19 related lockdowns, Brexit and an unanticipated surge in demand for renovation works have all played a role in creating supply chain challenges and labour shortages
- Escalating shipping prices and delays at British ports are causing shortages of crucial parts and materials.
- The Builders Merchants Federation (BMF) reports that timber prices had surged by 20% by the end of January, while some roofing parts are likely to be unavailable until August.
- Shortages of insulation, plaster, concrete products and even power tools have been experienced in recent months.
- Figures from the Construction Products Association show that the UK lost more than a quarter of its EU-born construction workforce between January 2020 and January 2021.
Index linking in May 2021 was practically Zero, in January 2022 it will be around 7%.
When you next tell your broker, “things are about the same as last year”, please think about index linking.
“It is a shield and not a sword, but may just protect you from being underinsured”
No more rhyming now, I promise.
By Dane Turner – Broking Director