Dovetail: Inflation and Property Values – Is Your Business Adequately Protected? 

Most lumber business owners already understand the many ways that inflation has impacted their companies. In their world, it is no secret that prices for building materials and labor have risen on average by about 36% over the last three years alone, according to the U.S. Bureau of Labor Statistics Producer Price Index (PPI). But these price increases don’t just affect the cost of inventory and the product prices that companies charge their customers. They also impact the amount lumber operators will have to pay to rebuild their businesses in the event of wind, hail, or fire damage. That’s why it’s imperative for business owners to update their property values and avoid a potential case of sticker shock after filing a claim. 

This combination of market and weather forces makes it imperative for lumber operators to obtain the most accurate and current valuations of their inventory and businesses.  

To ensure your business is adequately protected, consider these best practices:  

First, be proactive. This means not waiting until your carrier calls you to start the discussion. Instead, reach out to your broker and provide them with details about your property and your inventory, including any recent changes such as inventory surges, new buildings, or significant capital improvements. Then, ask your insurance advisor to give you a Statement of Values that you can sign off on. 

Next, you will want to review your inventory limits. Make sure your policy covers the cost of inventory replacement and pay particular attention to commodities you store that have undergone the greatest amount of price volatility. Also make sure to consider your building contents and equipment costs. While inflation has been the biggest driver of property values over the past three years, ongoing supply chain complexities are another complicating factor. This impacts rebuilding costs and lengthens the potential restoration period for your business. As you review your policies with your carrier or broker, be sure that your equipment limits will still cover you in the event of a loss. Also, evaluate your business interruption coverage and ensure it reflects today’s realities. 

The basic equation insurers use to develop your premium is rate multiplied by exposure. As values (exposures) increase, premiums increase commensurately. The more steps you can take to reduce your risk, the more likely you will be to mitigate rate increases, which are happening across the industry as well. Working alarms and sprinkler systems, updated roofs, new wiring, and other infrastructure improvements are proven risk mitigation steps.  

While inflation is an unfortunate new reality, it shouldn’t create vulnerabilities for your business. By collaborating with your insurer and right-sizing your property values, you will gain peace of mind knowing that you are covered in the event of a loss.