How Are Lumber Prices Affecting Your Insurance Premiums?
With renewal season just around the corner this a question we are getting frequently. Will rising prices in lumber spike insurance premiums? And why the heck are lumber prices skyrocketing in the first place?
What's With The Increase?
As the pandemic absolutely crushed the economy when it hit, sawmills in Canada shut down production in anticipation of a downturn in the housing market. Sawmills expected the slump to last up to 5 months response they cut shifts, slowed production, and limited staff to abide by public health orders. Unfortunately, the downturn was virtually non-existent and now the lumber market is red hot, seeing increases of over %100. Making it impossible for the mills to keep up and get ahead of demand while having to limit the number of workers to comply with social distancing. Pre Covid-19 a 2×4 was priced between $3.00-$4.00 and now they are sitting between $8.00-$10.00.
I spoke with Geoff Gregoire from Contractors Corner in Brandon, Manitoba for a local take on the spike in lumber prices. According to him, there was roughly a 2-week period of decreased demand, since then demand has skyrocketed. This being attributed to the stay-at-home orders forcing restaurant closures, inability to travel, cancelation of sports and families spending more time at home has kept that money in the bank and families staying at home, has driven the urge to renovate. An interesting trend noted by Geoff; Snowbirds, who historically do not spend money on home renovations, are now spending those dollars to update those glorious pink bathrooms instead of spending on their trips south. Modernizing for the purpose sale. As we all know, the housing market is quite hot.
Say you have 2 children in hockey. $2000.00 per child for equipment and fees. An extra $2500.00 for travel, food etc. That is rough combined total of $9000.00. And most families spend substantially more than that on sports and extracurriculars. That is an extra $9000.00 in your account. –
No one expected a DIY and homebuilding boom. With people forced to be at home, not only did they have more time on their hands and more income in their accounts, but this also triggered almost a “panic buy” to configure office spaces, learning spaces, outdoor spaces, and play/outdoor spaces in their homes. And those renovations that had been put off for years have now become a priority.
How Does it Affect My Insurance Premiums?
When construction costs rise, so do the homeowners’ replacement cost valuations. As replacement cost valuations increase, so do insurance premiums. Home insurance providers consider the cost of claims losses before increasing or decreasing premiums. Providers have a “pool” of money they pull from to service claims. In calculating construction costs, the rising price of lumber spikes the expense to replace and rebuild your dwelling. Hence the premium rise. With the increase in construction costs driving up home replacement cost estimates, insurers must adjust insurance to value (ITV) accordingly. ITV is a comparison between your home’s coverage amount and how much your insurance company may have to pay to replace or repair your property after damage in a covered hazard.
When Will My Premiums Rise?
Your premiums will only increase at renewal time OR if you make a change or adjustments to your policy before the term ends.
If you have not recently reviewed your insurance coverage, now is a good time to do so. An annual review will ensure your replacement cost data is accurate and up to date with the current home remodeling or repair costs. Giving you a layer of protection from having to pay expenses out-of-pocket. Our agents are always here to help and answer any questions you may have. Contact us via phone, email or drop us a line in the chat box!
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