The ongoing supply chain impacts of the war in the Middle East has seen construction material costs rise sharply in the UK.

New data has found the price of construction materials in the UK jumped 4.4% in the three months following the outbreak of the Iran war according to real estate finance and insurance specialist Karis Insurance.

It warned construction inflation threatens to leave UK homeowners and businesses at risk of being underinsured in the event of a fire or other major property damage.

The company explained that construction costs have now increased by 32% in the last five years, meaning that the amount of cover in many property insurance contracts is already lagging behind the current costs of rebuilding the property if it were destroyed in an incident.

It added many property owners have attempted to limit rising insurance premiums by not increasing the amount insured on their buildings in line with higher rebuilding costs. However, this can leave them seriously exposed in the event of a claim, potentially leaving them hundreds of thousands of pounds out of pocket.

Ravi Sejpal, director of insurance at Karis explained: “The risk of under insurance has already grown and the problem is likely to worsen over time.”

“Many property owners are understandably looking for ways to control rising costs. However, failing to keep insurance cover in line with surging rebuild costs is an increasingly risky way of trying to save money.”

Karis said the data showed the rise in construction costs since the outbreak of the Gulf crisis in February has been driven by increases in the price of fabricated steel (11.4%), pipes and fittings (8.5%) and water-based paints (6%).

As construction costs rise, insurance cover that was previously adequate may no longer fully reflect the true repair or rebuild cost of a property. As rebuild costs are 32% higher than five years ago, a property insured for £1 million could now be underinsured by £320,000!

Sejpal added: “If a fire or catastrophic event destroys your property it is already a traumatic experience. Being underinsured and owing hundreds of thousands of pounds on top of losing your property would prove a devastating blow.” 

He warned that the gap between insurance cover and rebuild costs could widen significantly. Some UK contractors have been warned of 10-30% price increases over the next three months as the ongoing geopolitical tensions in the Middle East continue to place pressure on global energy prices and building material supply chains.

Sejpal concluded: “Construction costs are only expected to rise faster with global supply chains under strain from the conflict in the Middle East. As such, if a property has not been professionally revalued recently there is a real risk that the insurance cover no longer reflects the true rebuild cost.

“Underinsurance often only becomes apparent when a major claim is made and by then it is too late. It is important to check if your property is underinsured now by requesting a Reinstatement Cost Assessment from a chartered surveyor.

“Checking and reviewing insurance now will be a fraction of the cost of finding your property is underinsured once a fire or catastrophic event has occurred.”