Amidst the hospitality sector’s recovery from the pandemic and rising inflation, re/insurance broker Lockton has warned businesses to closely evaluate building reinstatement values to avoid being inadvertently underinsured.
The hospitality industry’s financial prospects have significantly improved this summer thanks to increased demand and a decrease in COVID-19 restrictions.
However, Lockton warns that businesses are at risk if the values insured are not adjusted appropriately to account for the sharp rise in inflation being felt across the globe.
The operating landscape for many businesses has changed, says Lockton, inflation combined with a scarcity of labour and building materials has affected the amount and value of risk they have inadvertently taken on.
Lockton’s Head of Hospitality, Andy Nicholson commented, “Property damage claims are being hit particularly hard because of international shortages in timber, steel, cement, metals, and plastics.”
“This, combined with a global shortage of shipping containers, is leading to the ‘perfect storm’ of significant delay and exorbitant international freight costs. An increase in housebuilding and infrastructure projects is also driving the cost of labour higher.”
“The factors above are resulting in many reinstatement projects running overtime at a much higher cost than originally anticipated. Ensuring underinsurance doesn’t pose any significant business disruption risks will be key in the remainder of 2022 when inflation is expected to only rise more.”
Firms should conduct more robust reviews of building reinstatement values than in recent years and consider appointing a third-party valuer to undertake a Reinstatement Cost Assessment, says Lockton.
Nickolson concluded, “It’s worth also asking your insurance broker to review current policy conditions, ensuring they are fit for purpose and provide appropriate protection to help mitigate the potential for underinsurance.”