It used to be that the RC (replacement cost) to rebuild property increased at a slow enough pace that insureds and insurance companies could increase the building limit regularly so that way coverage was generally in line with the costs to rebuild with materials that were like, kind, and quality at any given time.
However, due to an increase in the building material industry due to a shortage of materials and shipping costs (including fuel), what used to be sufficient is likely insufficient to cover the increased cost of construction (ICC) in the event of a loss now.
So a higher demand now triggers an inflated cost at present.
It’s been noted by insurance carriers that this also affects the overall building limit and they are looking to counter this deficiency by increasing current building limits to make an insured whole again if they should suffer a property loss.
Insurance premiums are based upon expected loss costs, so the buck (literally) is passed to the insured to pay for the difference. This can even apply to liability losses where a claimant is awarded higher amounts for his/her salary loss and medical costs if injured.
Unfortunately, this is the new equation: Rising construction costs = a higher Building Limit. But by doing a little homework you can make your home or building limit work for you.
