Every year, your insurance agent should reach out to you and ask if you have had a recent “insurance appraisal” to assist you in getting the correct property limits of reconstruction costs for your policy. In Florida, condominiums are required, by Florida Statute, to get such a report at least every 36 months. For others, it is strongly encouraged.
So, what are reconstruction costs? They are the underlying basis of the replacement cost estimate and include labor, materials, and equipment costs needed to rebuild a structure. These costs are highly localized and often fluctuate, requiring constant monitoring. Below are some important facts to consider that influence changes.
Reconstruction, not new construction costs
Replacement cost estimates are based on reconstruction costs, which can be significantly different from costs associated with new building construction.Typically, reconstruction costs are higher than new construction costs for several reasons:
- Inability to plan projects – Property reconstruction requires the building to be re-built to the original condition and the scope of work is not known until the construction needs to start. Each project is unique, making it difficult to plan or leverage previous experience.
- One-off projects – Contractors never know when the next job will start. This makes it difficult to plan work agreements with subcontractors and buy materials in bulk, which can reduce costs.
- Site accessibility – In reconstruction environments, contractors often need to work around landscaping or near-by structures, making site access more difficult and costly.
Factors that influence changes in reconstruction costs
Keeping a continuous eye on reconstruction cost data is critical, as there are many factors that can move costs up or down. Here are some factors that influence costs:
- Supply and demand for labor and materials – Factors including new construction, and optimism or fear of future economic conditions influence supply and demand.
- Catastrophes – The sudden need for materials and labor after a storm can have an immediate impact on localized reconstruction costs. Catastrophes in areas where materials are produced can impact the supply of materials, impacting costs.
- The Cost of Energy – Changes in crude oil, electricity, and other energy factors can influence production, transportation, labor costs, and petroleum-based materials such as asphalt shingles, vinyl siding, and carpeting.
We encourage you to speak to your property manager and insurance agent to make sure you have a current replacement cost report. This is part of your due diligence in the process, and no one wants to pay more for insurance than they have to. At the end of the day, no property owner wants to be underinsured at the time of a loss.