Anyone who was thinking of building a fence this summer has more than likely instead opted for a few patch jobs and repair work after being presented with the final quote. Back in May when many were planning their summer home construction projects, the cost of lumber was running wild. CBC.ca reported some homebuilders were spending more than three times the usual to frame a house. Two-by-fours typically used for fencing increased in cost by about five times, to a high of $2,200 for 1,000 board feet from a high average of $500. Sheet lumber saw the most marked increase, going for nine times its regular price of $10 to $90.
It does appear that May was the peak, however, as lumber prices have started to slowly come down, and even dropped quite dramatically at the beginning of August. One thousand board feet of softwood lumber is down to about its high average of $500, says CTV News. Industry experts say the reason for the price plunge is that prices simply became too high, and people began holding off on their projects, or cancelling them entirely. Retailers are having to get rid of their stock, but since they also spent a lot more than usual for their product, they’re not likely to let it go at a loss. That’s why the prediction is that lumber and construction costs will not go down to pre-pandemic levels in the near future.
Why is lumber so expensive?
There is a combination of factors that caused lumber prices to skyrocket, but most seem to agree that families making home renovations during the pandemic caused stress on the market. People pivoted to spend their vacation savings on a new home office or other changes to make staying in more often as comfortable as possible. Others decided to leave their cramped downtown condos in lieu of more space in the suburbs, and put some of their savings into improving their new homes.
There were a lot of people buying lumber when at the same time COVID-19 had forced the mills to work with far fewer employees or even close outright. Demand was much higher than the supply, which always results in higher prices.
Albertans should never forget about the devastating mountain pine beetle, too, which remains a major problem in B.C. and is becoming increasingly worrisome in this province. Pine beetles have destroyed 15 years of lumber supplies in B.C, and due to the fact they kill trees also make forests far more prone to wildfire.
What does the cost of lumber have to do with my business insurance?
It’s not an obvious correlation right off the bat, but the high cost of lumber means that construction costs must also rise in order for companies to continue to make a profit. And that’s where business insurance comes in.
Soaring construction costs means businesses may be at risk of being underinsured on their replacement costs and also may not be able to reach their co-insurance percentage. A co-insurance clause in included in many business insurance policies and stipulates that business owners must carry insurance equal to a certain percentage of the property’s true value (usually 80%, 90%, or 100%). A co-insurance clause is offered in exchange for lower rates, and if an insurance claim is ever filed the policyholder shares in the loss by receiving a lesser payment.
If you, as a business owner, do not have the proper amount of insurance to meet your clause, you may be subject to a penalty. Let’s say the replacement cost value for your property is $1 million. If your co-insurance percentage is 90%, that means you must carry at least $900,000 worth of insurance. If you haven’t updated your policy in some time and are only insured for $700,000, you will be penalized if a claim is filed. The equation is: the amount of coverage in your policy ($700,000), divided by what you should have been covered for ($900,000), then multiplied by the amount of loss. Assuming a total loss of $700,000, the payment you receive will then only be $544,444. For a property worth $1 million, this is could not be enough to recover.
It may be time for an insurance appraisal
Even though the cost of lumber has come down slightly, an insurance appraisal can bring you peace of mind in knowing you are completely covered should the worst happen. An insurance appraisal will provide all the details you need for rebuilding, including reconstruction costs (taking into consideration the higher cost of lumber and construction), demolition and materials removal, and site improvements. An insurance appraisal also provides you with professional documentation of your assets, which can be very helpful when filing a claim.
Talk to an insurance broker
While you are looking for an insurance appraiser, talk to an insurance broker. Insurance brokers know the right questions to ask to find you lower business insurance rates. Taking advantage of any bit of savings that may be available can help protect your company’s viability.
You’ve worked hard to grow your business through difficult times, and you need to protect that investment with the right customized business insurance policy.
Additional business insurance policies available through Lane’s include: