In periods of high inflation, we all feel the financial pinch. The climbing cost of goods and services affects everything from food and fuel to airfare and insurance premiums. In this second part of our series on the factors impacting your worship facility’s insurance, we’ll look at inflation and ways you can make sure your organization is properly covered.
On the heels of the COVID-19 pandemic, one of the sectors most impacted by rising inflation was the building industry. Due in part to the higher cost of building materials and a shortage of skilled labor, building replacement costs rose 55% between 2019 and 2022. That means it costs insurance companies significantly more to pay property claims than it did five years ago. Insurance industry experts project building replacement costs will continue to outpace overall inflation through 2026.
For insurance companies, economic conditions like inflation, a competitive job market, the rising cost of healthcare and access to supplies all impact claim costs. In this environment, insurance companies cannot meet unsustainably higher costs without asking consumers to share some of the additional burden, typically through higher premiums and deductibles.
While we continue to deal with the effects of inflation, there are things you can do to help control your insurance costs while ensuring your worship facility is properly covered.
Staying on top of insurance matters
Keeping on top of your insurance matters can be a challenge for worship facilities that rely on volunteer boards and committees. Turnover among those responsible for managing your insurance can create problems if you don’t maintain continuity in your insurance program.
If your worship facility has an insurance committee, stagger terms for members to minimize the disruption of turnover. If the responsibility falls to one person, they should fully inform their successor of the duties and current programs before leaving the position. If your organization leadership isn’t directly involved in the decision-making process, they should still be kept up to date on your insurance programs as they will likely be the ones who work with the insurance company during settlement of claims.
As inflation impacts donor and member contributions and rising interest rates limit access to capital, you may be tempted to gamble on delaying needed repairs. A delay, in fact, could lead to a larger, more costly repair or an increased risk. Higher insurance deductibles mean your organization will pay more for repairs or replacement if your worship facility experiences a loss. Also, keep in mind, insurance does not cover general maintenance and your insurance company may deny a claim for damage to an already-neglected building feature, such as your roof.
When you do have a claim, reporting it promptly can help reduce the cost. Water damage, for example, can lead to mold if not addressed quickly. Prompt reporting is also crucial for workers’ compensation claims. Statistics show the cost of a workers’ compensation claim increases greatly with each passing week between the date of injury and when a claim is filed. Make it a best practice to report all claims within one day.
When any of your organization’s key contact people change, remember to let your insurance provider know. While it’s easy to forget to update your contact information, it can ultimately prevent you from receiving important information, notices, updates and more from your insurer.
Making sure you’re covered
For most organizations, the foundation of an insurance program is a multi-peril policy. It provides coverage for most of your property and general liability exposures. The amount of insurance you carry on your buildings and contents affects how much you receive for a total loss – or even a partial loss.
To make sure your worship facility is properly covered, value your building and contents at what it would cost to replace them in today’s dollars. Original purchase price and market value can usually be ignored. Keeping in mind the rising cost of construction, you may be surprised at how much it would cost to replace your building should it suffer a loss.
For an accurate replacement value of your building, you can hire a professional appraiser or accept the value your agent recommends. This makes it critical you select a company and agent familiar with the architecture and construction costs of buildings like yours.
It’s important to keep a thorough inventory of your worship facility’s contents, including photographs and the value of each item. Having an inventory helps you and your insurance company set appropriate insurance limits. Also, if you have a loss, that inventory will make it much easier to settle your claim.
When setting values on your worship facility’s property, it’s important to know if your insurance policy includes a coinsurance penalty. Some policies stipulate that your insurance cannot be less than 80% of the value of the property at the time you suffer a partial loss. If you don’t have enough insurance to meet that requirement, you might incur a coinsurance penalty. This means you will share in the loss with your insurance company — beyond your deductible. To avoid a coinsurance penalty, set your insurance amount accurately and keep it up to date with periodic reviews.
In periods of moderate to high inflation, you can purchase “inflation guard” coverage to automatically adjust your limit between policy reviews.
It’s also important to know if your policy provides for settlement of claims based on actual cash value or replacement cost. Replacement cost is the amount it would cost to repair or replace an item with material of comparable kind and quality. Actual cash value is the replacement cost less an allowance for deterioration, depreciation, and obsolescence. Most worship facilities should have replacement cost coverage for their buildings and contents.
If your organization has multiple buildings or operates worship facilities at multiple locations, a blanket coverage may be right for you. This means combining all buildings and their contents under one limit, allowing you to shift contents from one building to the other without affecting coverage. And, with blanket insurance, you can be insured for 100% of the value at each building without purchasing coverage for 100% of the combined value. Let’s assume you have two buildings, each valued at $100,000. With a blanket limit, you could purchase $180,000 of insurance (90% of the combined value is typically required for blanket insurance), meet the coinsurance requirement, and still apply $100,000 to either building in the event of a loss.
Protecting your worship facility can be a challenge during times of high inflation. Knowing your insurance needs and making informed decisions today can go a long way toward controlling your costs in the long run.
About the author
Pam Rushing is CPCU, President – Subsidiaries and Chief Underwriting Officer, for Church Mutual Insurance Company, S.I. (a Stock Insurer).