Inflation and Impact on Reinstatement cost

Inflation see insurers facing increased claims costs at the same time as increasing the returns from their investments. But these increases may not run in parallel and, if there is a disconnect between fixed asset inflation and the returns from investments, insurers can see margins being squeezed. In relation to property damage insurance, inflation is driving a faster rate of disconnect between historic costs or current sums insured and actual values at risk. 

It is also increasing the need for more frequent reviews of policy terms and sums insured, and the risk of losses exceeding policy limits so increasing the potential for claims disputes or litigation and in order to understand the global market factors, the following will need to be considered: – 

  1. Movement in price of tenders or contract awards for construction projects.
  2. Movement in price of tenders or contract awards for plant and equipment supply.
  3. Measuring the trend of input costs to a contractor in terms of increases in the cost of labour, plant and materials.
  4. Monitoring movements in exchange rates.
  5. Tracking the trends in transportation, handling and movement of assets.
  6. Monitoring import duties and sales taxes.

​Access the John Foord composite view relevant to the global market conditions and the impact of reinstatement costs below.

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