The high cost of metals continues to impact the construction industry and the cost of building projects to the end client. However, a key issue that can often be overlooked is that of building reinstatement costs—which may only become apparent when a business needs to make a claim on their property insurance.

Author: Greg Spiteri


The cost of raw materials is predicted to remain at an unprecedented high in the UK and Europe for some time yet. Overall, the cost of construction materials, including timber, cement and plastic products, has risen by 21% over the year to January 2022, and metal prices are still elevated against pre-pandemic levels—with the cost of steel seeing a 25% jump in March.1

Why are metal costs so high?

Looking back to March 2020, at the beginning of the COVID-19 pandemic, metal prices experienced an acute decline, mainly due to a collapse in demand. However, by the end of that year, it was a different story, as demand resumed but outstripped supply. This pushed up the prices of steel, non-ferrous metals, commodities and raw materials, as global supply chains continued to experience significant disruption.

Fast-forward to the end of Q1 2022, and the Russia-Ukraine conflict has compounded production and supply issues, and pushed prices higher. As energy companies move away from the use of Russian gas and oil, this is also affecting production levels and increasing lead times. The Construction Leadership Council (CLC) has revealed that some building products that are particularly energy-intensive to manufacture have gone up by another fifth already in 2022.2

European steelmakers are now facing an unprecedented rise in costs, both in energy and raw materials. In March 2022, British Steel increased steel prices to more than £1,000 per tonne—a rise of £250 per tonne for all new orders, and the company’s highest one-off increase. The move will add to the existing pressures of construction companies and the cost for end clients.

What can this mean for commercial property insurance?

While these high material costs may seem to be a more pressing issue for the construction of new properties, or the cost of redevelopment projects, there is also another important factor to consider—the underinsurance of existing buildings.

Property is one of the most common areas where underinsurance can occur. In many cases, it happens when valuations are out of date, roughly estimated, or incorrectly calculated. Given that the cost of materials has seen up to a 25% increase, if you have not had a property valuation in the last two or three years, it is possible that your reinstatement (rebuild) costs may not reflect your current sum insured.

This would equate to underinsurance, and if a building was damaged or destroyed, and you needed to make an insurance claim, you may not get the pay-out you would expect. This is because the insurer can apply the ‘average clause’—a clause in a policy stating that the policyholder must bear a proportion of any loss if assets were insured for less than their full replacement value.

This means that in cases of underinsurance, the insurer can reduce the settlement by the same percentage the asset is underinsured—regardless of the size of the claim. It can therefore be essential to have an up-to-date valuation, and ensure your insurance policy reflects the true reinstatement value of your property. It is also important to note that the average clause can apply even if the underestimation of your property value was accidental.

Remember: Buildings insurance reinstatement cost valuations should be carried out by qualified building surveyors, whose activities are regulated by the Royal Institution of Chartered Surveyors (RICS).

Another potential factor to consider is that the higher value of scrap metal could see an increase in theft of metal from buildings, particularly those which are unoccupied. There were 19,044 metal theft offences recorded in England and Wales in the reporting year 2020/2021—an increase on the previous reporting year.3

Historical buildings are particularly susceptible to this crime, and it is often not only the replacement costs of the metal to consider, but also any repair work if there is damage to stonework caused during the course of the theft, or water damage to internal furnishings if it rains before the theft of roof coverings is discovered. Again, this is where having an accurate buildings reinstatement cost can be vital.

How can Gallagher help?

Our partnership with an international RICS-certified risk management specialist means we can help ensure your property is adequately covered. They will audit your current values to make sure they are reasonable and give you useful insight into the operational business issues that could influence your levels of cover. They can also help you determine declared value ranges for your assets, and can advise on areas such as regional variation, cost movements or exchange rate fluctuations.

Not only can we help you to secure appropriate cover at renewal, we can take care of amendments you need to make to your policy should your cover requirements change throughout the policy year. We can also assist in the event of a claim, with an in-house claims team and loss adjusters who will work closely with you to bring about the desired resolution.

For more information or to arrange a buildings insurance reinstatement cost valuation, please speak to your local Gallagher representative.

Author Information


This note is not intended to give legal or financial advice, and, accordingly, it should not be relied upon for such. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. In preparing this note we have relied on information sourced from third parties and we make no claims as to the completeness or accuracy of the information contained herein. It reflects our understanding as at 27.05.2022 but you will recognise that matters concerning COVID-19 are fast-changing across the world. You should not act upon information in this bulletin nor determine not to act, without first seeking specific legal and/or specialist advice. Our advice to our clients is as an insurance broker and is provided subject to specific terms and conditions, the terms of which take precedence over any representations in this document. No third party to whom this is passed can rely on it. We and our officers, employees or agents shall not be responsible for any loss whatsoever arising from the recipient’s reliance upon any information we provide herein and exclude liability for the content to the fullest extent permitted by law. Should you require advice about your specific insurance arrangements or specific claim circumstances, please get in touch with your usual contact at Gallagher.