How Inflation Is Impacting Insurance Claims and Asset Valuation

Inflation was running hot even before Russia’s invasion of Ukraine, driven by higher commodity prices, supply-chain interruptions, and high energy prices. The war in Ukraine caused further price shocks for a wide range of commodities, energy and food.

Several specific inflationary trends are particularly alarming, including how price indices for energy, raw materials and construction costs are developing, because these have an immediate impact on businesses and on potential insurance claims.

For example, it is now much more expensive to repair or rebuild damaged property. The cost of construction is soaring in many countries due to higher prices for energy and raw materials.

The costs of cement, timber and steel have risen dramatically. Steel, for example, is almost 50% more expensive than it was a year ago. On average, construction inflation is around 11% to 25% in the United States, United Kingdom and Germany.

In addition, materials are not only significantly more expensive but often simply unavailable due to logistics, shipping and supply-chain bottlenecks. In May 2022, some 20% of the world’s active container ships were currently sitting outside congested ports.