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Inflation implications for property and business interruption policies

As businesses worldwide are experiencing the effects of the highest inflation rate in a generation, it is more important than ever to be mindful of the risks of underinsurance in property and business interruption policies.

Businesses worldwide are experiencing the effects of the highest inflation rate in a generation. The surge in inflation is impacting asset and business interruption values across all industries. In light of this, businesses need to review their insured values and their policy wordings to confirm that their insurance programmes are still adequate.

There have been significant rises in the cost of reinstating property. In the UK, inflation is expected to reach 10% in the fourth quarter of 2022 and the cost of integral building materials has been increasing at a much higher rate.

Added to this, the cost of labour and logistical services is also fast increasing with 70% of construction firms and 72% of transportation and distribution firms expecting to raise their prices over the coming three months.

In this environment, it is more important than ever to be mindful of the risks of underinsurance. Underinsurance may impede business recovery by capping claims payments below the actual value of lost assets. Furthermore, stipulations in policy terms could mean additional implications if underinsurance occurs.

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Inflation implications for property and business interruption policies

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