- Lumber is three to four times more expensive today than it was just one year ago, which has added as much as $30,000 to the cost of building (or rebuilding) a home in Canada.
- Ontario home builders are concerned about whether insurance-funded projects will be able to shoulder the additional cost burden.
- Experts say standard home insurance policies should cover the cost of a rebuild “using like materials” regardless of price as most providers plan for price fluctuations.
The rising cost of building supplies could impact home insurance premiums, but experts say it is still too early to tell how much.
The cost of building materials, particularly lumber, has risen significantly amid supply chain disruptions. Mills and factories in Canada and the U.S. have been shut down on and off over the past year due to efforts to contain the spread of the coronavirus.
Record-high prices have added as much as $30,000 to the cost of building a home in Canada. Some retailers have even started openly discouraging homeowners from doing renovations.
Joe Vaccaro, CEO of the Ontario Home Builders’ Association, said prices for most wood products have tripled over the past year.
“When I speak to my renovator members, they’ve made it clear that finding supplies and materials is extremely difficult and that the cost is three or four times higher,” he said.
“So a job that they placed out a year ago, they’re going back to their clients and saying the price of lumber has gone up four times. There’s going to be a price adjustment. The question then becomes, is there enough insurance money provided to cover that rebuild?”
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The reason policyholders haven’t faced major issues yet is because home insurance policies tend to have mechanisms built in to account for price fluctuations, according to Rob de Pruis of the Insurance Bureau of Canada (IBC). Mr. de Pruis, the IBC’s western director of consumer and industry relations, said one such mechanism is guaranteed replacement cost endorsements.
Those ensure the costs of repair or rebuilding are covered even if the damage is greater than the valuation of the coverage. That is because the valuation is not a capped limit, meaning it can change depending on circumstances.
Another way of accounting for more expensive lumber prices is through what is called a single inclusive limit. That is especially useful for people with more than one structure on their property (such as a garage, shed or outbuilding) as it allows costs to be moved around to cover what is considered most essential.
“If you do have a total loss on your home, as long as you’re insured to a value that your insurance company initially came up with, even if there are increases or price fluctuations, you’re not bound by the limit you have in your policy,” Mr. de Pruis told a local Alberta news outlet last month.
“Ultimately, your company will be paying the guaranteed replacement cost for similar kind and quality materials.”
- With files from Thompson’s World Insurance News. Used with permission.