PAGE 3 Impact on Owners Given the backlog of projects, shortages of skilled labor, and supply chain disruptions, MarshMcLennan finds that “contractors are likely to be more selective in the jobs they bid for, the conditions they’re willing to accept, and the partners they work with.”6 So, for at least the next several months, property owners will find it to be harder and more costly to execute a construction project than in the years before COVID-19. For those hoping to be “first out of the gate” with a new or renovated commercial building project following the pandemic, that will be hard to accomplish unless you’re willing to pay substantially more than normally estimated cost for expedited delivery. Even with that, there’s no guarantee your project won’t be thrown off-schedule by a shortage of materials. Given that, many property owners planning to build or renovate may choose to wait for the construction market to reach a new equilibrium. As of mid-2021, we have yet to see how the widespread work-from-home pattern established during the pandemic will permanently affect the design and market for commercial office space. Since it is likely that another virus will emerge at some point, major innovations are anticipated to enhance ventilation and allow for efficient social distancing in all types of commercial space. Since property owners can’t assume that their property will serve the same purposes after COVID-19 as it did before, it may be just as well that they wait to see what demand emerges. At that time, the final costs of construction will be better known. Insurance Valuation Of course, if a property suffers damage from a fire, windstorm, or some other hazard, the owner won’t have the luxury of waiting for the construction sector to stabilize before having to rebuild. In anticipation of such a possibility, all property owners are advised to review their property insurance to see if their coverage is adequate to address the high cost of materials. A surge in materials costs can affect property insurance coverage in two ways: • In the case of a total loss to the property, the cost of replacing it may exceed the amount of insurance available; and • Even in the case of a partial loss, the amount recovered for repair could be reduced by a “coinsurance” penalty. Coinsurance provisions require that the amount of insurance purchased for a property be at least equal to a certain percentage of the property’s overall value, typically 80%. If the limit of insurance is less than the coinsurance percentage, the amount paid by an insurer for any loss will be reduced by a corresponding percentage. (The logic behind this practice is that large properties have a greater possibility for loss, and the premium collected should reflect that.) Ethan A. Gross, CEO of Globe Midwest/Adjusters International, says pandemic-related disruptions have created a “perfect storm” of conditions that has restoration contractors struggling to complete repairs for amounts agreed to by loss adjusters. Construction After COVID-19 Continued Insights for Your Industry PROTECTING YOUR PROPERTY 800.779.8714 | jansenai.com Sheila E. Salvatore, Editor | Editor@AdjustersInternational.com Copyright © 2021 Adjusters International, Ltd. All Rights Reserved. Insights for Your Industry® is published as a public service by Adjusters International, Ltd. It is provided for general information and is not intended to replace professional insurance, legal and/or financial advice for specific cases. E14-1024
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