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CNA Blog — From the Experts

Published Tuesday, September 26, 2023

After Years Of Rising Costs, Reviewing Property Coverage Is Key

Commercial property values have been dramatically impacted by inflation in recent years, and the increasing prices to build, maintain and repair properties have led to higher insurance costs. As a result, thousands of businesses are now underinsured or have large gaps in their property insurance programs – and many don’t realize the potentially costly risk exposure they face.


In this post, we’ll review the factors that led to the current situation, examine how rising costs affect all aspects of commercial property insurance, and share how brokers, agents and policyholders can address these risks and prevent exposure due to underinsurance.


Recent trends: rising costs and supply chain issues


Inflation is typically below three percent on an annual basis, but the last few years have been far from normal. Although inflation has slowed dramatically in recent months, the cost of most consumer goods has surged since the start of the Covid-19 pandemic. In fact, according to the Consumer Price Index, it took more than $118 in June 2023 to equal the buying power of $100 three years earlier.


The impact has been even more dramatic on construction and building prices. From supply chain challenges to natural disasters to geopolitical issues, a wide range of influences have led to a spike in property-related costs. These diverse factors include:


  • A global supply chain still recovering from Covid-19’s impact
  • Raw material shortages and intermittent shipping delays
  • Worker shortages (many skilled workers retiring and fewer young people entering trades)
  • Labor challenges around the world (adding more uncertainty to the flow of goods)
  • The Russia-Ukraine conflict (leading to continued increases in commodity prices)
  • Natural disasters (which caused over $120B in insured losses in 2022)1


The impact on commercial property insurance


The effects of inflation on property – including cost of repair, extended loss of use, and supply chain issues – have caused widespread challenges with underinsurance. A recent study of property appraisals revealed that 68% of buildings valued from 2020 to 2021 were underinsured by 25% or more, and 19% were underinsured by 100%. Overall, nearly 90% of the buildings appraised were undervalued.2


To consider the real-world ramifications of this trend, imagine a business that purchased property insurance two years ago. Although their building would have cost $10 million to rebuild at that time, it might now cost $12 million or more. And if the insurance limits haven’t been adjusted during that time period, the insurance policyholder may now have to find $2 million to make up the difference – or be able to rebuild 80% of the building that was needed for their operations.


Challenges for policyholders, agents and brokers


To avoid paying more out pocket after a loss, it’s critical for commercial property owners to review their insurance coverage and ensure they have adequate protection. This relates to not just their building insurance, but also to equipment breakdown and business interruption coverages.


But it’s not just property owners who are affected. Insurance agents and brokers have an incentive to ensure their clients have the right property coverage as well, aside from simply providing good service. If an agent doesn’t talk to their client about the need to review property insurance values, they expose themselves to potential Errors & Omission risk. In the example above, the building owner might end up suing the agent over the $2 million shortfall in property value, rather than paying out of pocket for the amount exceeding the policy limit.


And for insurance carriers, rising claim costs create an urgency to ensure that the values and premiums paid align with the increased cost of claims.


In short, inflation is an urgent issue for everyone involved when it comes to commercial property insurance. All parties benefit from reviewing policy details, coverage limits and property valuations frequently. This ensures the coverage keeps pace with cost trends associated with inflation, natural disasters and supply chain issues, and helps avoid the costly risk of underinsurance.


To learn about CNA’s meaningful solutions for commercial property exposures, visit our Property page.





The information, examples and suggestions presented in this material have been developed from sources believed to be reliable, but they should not be construed as legal or other professional advice. CNA accepts no responsibility for the accuracy or completeness of this material and recommends the consultation with competent legal counsel and/or other professional advisors before applying this material in any particular factual situations. This material is for illustrative purposes and is not intended to constitute a contract. Please remember that only the relevant insurance policy can provide the actual terms, coverages, amounts, conditions and exclusions for an insured. All products and services may not be available in all states and may be subject to change without notice. “CNA” is a registered trademark of CNA Financial Corporation. Certain CNA Financial Corporation subsidiaries use the “CNA” trademark in connection with insurance underwriting and claims activities.

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One or more of the CNA companies provide the products and/or services described. The information is intended to present a general overview for illustrative purposes only. Read CNA’s General Disclaimer.
One or more of the CNA companies provide the products and/or services described. The information is intended to present a general overview for illustrative purposes only. Read CNA’s General Disclaimer.
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