Peter Wassell, technical director at Sedgwick, shares insight into the latest Building Repair Costs review which looks at the issues that could potentially impact the cost of building repairs over the months ahead
Last year, the insurance industry directly contributed an estimated +£3bn to the UK construction market, funding repairs to damaged commercial and domestic properties for claims customers. And all the widely reported inflation issues and ongoing price increases within the construction sector are consequently putting enormous pressure on insurers and their service providers. Ultimately this will impact everyone’s insurance premiums.
Unless you’ve been through it, you might not appreciate what happens when a property is affected by a devastating event, such as a fire or flood, and all that’s involved in making an insurance claim. The process is entirely different to any other type of construction procurement.
Take a standard planned building project, a house extension, for example. The customer has an idea, appoints an architect who secures planning permission and building regulations, and then the build goes out to tender. A few months down the line, works finally start, and hopefully, within a year, it’s complete.
Complex repair process must happen quickly
The complex repair process following a major flood or fire, on the other hand, must happen quickly as the property owner is without a home to live in or business premises to work from. Following a flood, the building is still there, but it’s uninhabitable, and traditionally, it would be stripped out and adequately dried before repairs can begin. And while this is happening, the customer is in alternative accommodation.
The support that insurers provide in these situations is significant. Some customers elect for a cash settlement of their claim, but many ask insurers to organise the reinstatement works to their property. This work is usually passed on to their preferred loss adjuster and building repair network to investigate and manage.
The loss adjuster’s role is to settle the customer’s claim under the terms of the policy and manage the logistics of dealing sensitively with each customer’s situation and concerns. Many adjusting firms have access to a network of specialist building contractors, who are experienced in dealing with this type of work, and each company may oversee high volumes of claims.
Sedgwick’s network is Repair Solutions, which provides UK coverage through 120 approved building contractors. We complete over 20,000 repairs annually – ranging from simple initial safety repairs to complete property demolition and rebuilds – costing anywhere between £1k – £1.5m. Considering the type of damage and the trauma customers face, you can appreciate that these repairs require much more than building know-how. Soft skills and empathy play an essential part in the human aspect of the process.
However, the emphasis is always on speed. The customer might be comfortably living in alternative accommodation, but much research, including from Public Health England, has shown that flood claims can have a significant negative impact on mental health, with time out of people’s homes being a key contributing factor.
Reduce delays in the procurement process
To reduce delays in the procurement process, a pre-agreed schedule of rates is often used to estimate and carry out repairs. However, this can be challenging when working on large volumes of individual contracts, requiring an immediate start and quick completion. And more so now, with material costs constantly changing, current labour shortages and the high demand for skilled organisations.
It’s been well publicised that price increases have hit the wider construction sector. This is driven by Brexit, COVID-19 and subsequent supply chain issues, including reduced manufacturing capacity, shipping difficulties, insufficient HGV drivers and increased demand.
We recorded significant price increases in 2021. Timber skirting was up +61%, structural timber +45%, uPVC windows +8%, as well as other materials, such as insulation, bricks and building blocks, paint, cement and plaster. This upward trend persisted in the first four months of 2022 and is expected to continue. Delivery lead times are also a problem – roof tiles can take up to 26-weeks, and the order books on some blocks and bricks have been closed until the backlog is reduced.
Skilled labour is another ongoing issue. We asked our contractor network about their experience of losing staff to other sectors, and the average loss was 16.4%. One London-based contractor stated 50% of tradespeople had left for higher rates of pay, and 84% of contractors reported that they had increased tradespeople’s wages by an average of 9.6%.
Global uncertainty and price trends continue to affect building repair costs
Global market uncertainty continues, and the impact of the war in Ukraine is a key concern. Ukrainian and Russian nationals comprise 15% of the merchant shipping workforce, and with Ukrainians returning to join the military, disruption to the supply chain is expected. Trade associations have urged members to cease trading with Russia – the Timber Trade Federation and the European Federation of Building Material Distributors, for example – this will inevitably reduce supplies coming into the UK.
Efforts to provide alternatives to Russian gas come at an increased cost. Energy-intensive material production, such as European manufactured bricks and steel, will no doubt go up in price as a result. British Steel recently announced a £250 per tonne increase.
Also, one of China’s largest property developers, Evergrande, is currently struggling to avoid defaulting on debt totalling tens of billions, causing financial uncertainty globally. In some circles, the Evergrande crisis is being compared to the bankruptcy of the Lehman Brothers, which saw the beginning of the most severe recession in decades. If Evergrande should collapse, it will send shockwaves around the world.
A resilient and sustainable approach to building repairs
An Association of British Insurers (ABI) report found that insurers paid out £15m a day in property repairs in previous years – £8.1m was for domestic insurance claims and £6.9m related to commercial claims. In this ongoing period of change, uncertainty and challenge, insurers continually monitor the market closely to understand how the changing construction economy will impact their business. But there’s another issue that insurers need to consider – climate change. Six of the ten wettest years recorded in the UK have occurred since 1998, and the frequency and intensity of these extreme weather patterns are causing increased damage to buildings. It has long since seemed inevitable that we must find better ways of managing these types of repairs to the mutual benefit of customers, insurers and our environment.
The ABI estimate that some 17 million homes across the UK are currently insured. And in a recent joint report by the ABI and Flood Re, flooding was cited as the greatest natural disaster risk, with an estimated 1 in 6 properties in England and Wales, 1 in 11 properties in Scotland and 1 in 34 properties in Northern Ireland now at risk of flooding.
For over six years, we’ve been working on a resilient approach to property repairs, which is based on scientific drying techniques. If approached carefully, most modern structures can be successfully dried out without subjecting them to the aggressive strip-out that’s traditionally applied to flood-damaged properties.
We used these techniques on a project managed approach to a recent widescale flooding event. This enabled us to move customers back into their properties within 11 weeks, reducing the expected claim duration by a massive 70% and repair and alternative accommodation costs by around 50%.
Then there’s the green agenda. Insurance companies are focused on sustainability, and they influence the way loss adjusters do business – insurers expect their business partners to evidence a robust plan to achieve carbon neutrality. Sedgwick’s repair solutions was certified carbon zero at the end of 2021 – no mean feat when you’re working with building firms that don’t always have the appropriate administrative infrastructure and support.
Use a schedule of rates to determine the cost of building repairs
In the insurance sector, we use a schedule of rates to determine the cost of building repairs and help speed up the claims process. However, this means we must stay one step ahead of the myriad of issues that could potentially influence the market in the months ahead. In a recent review, we revised our annual inflation figures from 6% over the course of 2022 to 10% – reflecting first-quarter price increases and advance notification of others, as well as rising petrol and diesel costs and escalating wages. This is our highest annual inflation rate in over 20 years.
On-site cost savings are crucial. We can’t buy or plan ahead as we can’t predict where or when the next major event will happen. Our role is to provide a rapid response to each situation as it arises – aiming to deliver the best possible outcome for those who are unfortunately impacted, and at a fair and reasonable cost to insurers.
Skills shortages in the building insurance sector
And just as building contractors have ongoing problems attracting and retaining staff, the insurance sector also needs more skilled, talented and enthusiastic individuals looking for career opportunities where every day you genuinely get to help people through a crisis.
It might surprise many that the insurance sector is a major employer of building surveyors and structural engineers. This important resource helps us manage the vast range of building repairs projects we carry out each year. We also have our own design offices to help ensure that any major works are arranged in accordance with building regulations and to guide insurers on any specific planning requirements.
Loss adjusting and insurance claims management may not seem an obvious choice for construction and engineering professionals – it certainly isn’t for the faint-hearted. It’s fast-paced, every day is different, and you never quite know where you might be working next month or even next week. But if you are empathetic and have excellent soft skills, it’s a profession and a career like no other.
