Inflation is not just a headline; it quietly reshapes the gap between what your buildings would cost to rebuild and what your policy actually covers. Many owners set limits years ago and renew on autopilot. Construction inputs and labor keep moving, policies do not. That mismatch is where underinsurance lives.
Why rebuilding costs have outpaced policy limits
Material and labor costs have risen since the pandemic, and the climb has not fully reversed. Government data for July 2025 shows construction input prices up 0.4 percent month over month, with nonresidential inputs rising at the same pace. Trade press summarising that data pegs the year-over-year increase near 2 to 3 percent, which may sound modest until you compound it across multiple years without adjusting limits.
Major contractors also report steady cost pressure. Skanska’s summer 2025 trends note a composite increase of about 3.4 percent over the prior 12 months, with mechanical, electrical, and plumbing trades running hotter than the broad index. That means the systems that drive the biggest line items in a rebuild are getting pricier.
Even the broader Producer Price Index has re-accelerated, up 0.9 percent in July and 3.3 percent year over year, signaling renewed upstream price pressure that can filter into materials and services tied to construction.
How widespread is underinsurance?
Underinsurance is not a niche problem. A late-2024 brief citing a Kroll study found 90 percent of appraised buildings underinsured, and nearly seven in ten valuations from 2020–2021 came in at least 25 percent too low. Many owners only update replacement costs every three to five years, which leaves a long runway for inflation to pull limits out of date.
Residential reconstruction data tell a similar story on the personal lines side, with CoreLogic showing a 4.2 percent national increase year over year through October 2024. Commercial trends differ by market, but both point in the same direction: rebuilds cost more than the limits many policies carry.
The coinsurance trap that magnifies shortfalls
Coinsurance provisions are often buried in property forms. If your limit falls below a set percentage of actual value, your claim payment is reduced by the same ratio. Independent references define coinsurance plainly as a clause that penalises recovery when the limit is less than, for example, 80 percent of true value. Carriers like Travelers publish examples showing how a partial loss can be cut by tens of thousands when limits lag reality.
Think about the math. If a building would cost 2 million to replace and your policy shows 1.4 million with an 80 percent coinsurance requirement, you are insured to only 70 percent of value. A 300,000 partial loss will be paid at roughly 70 percent before deductibles and sublimits, leaving a painful bill that many owners do not anticipate.
Inflation hits more than bricks and beams
Rebuilding draws in code upgrades, specialty trades, longer lead times, and higher soft costs. That spills into time-element coverage. Business income and extra expense values are often based on old sales or payroll levels and outdated restoration timelines. If materials take longer to arrive and skilled labor remains tight, “period of restoration” assumptions from a pre-inflation worksheet will not hold. Even a small variance can exhaust limits months early.
Owners who focus only on the building limit miss these connected exposures. Ordinance or law, increased cost of construction, debris removal, and extended period of indemnity deserve a fresh look any time costs shift.
Practical steps to close the gap
- Re-establish replacement cost values annually. Use current cost guides, contractor input, and, where warranted, a professional appraisal. For multi-location schedules, consider staggering formal appraisals across the portfolio each year so no site goes stale.
- Add an inflation guard or automatic increase. These features lift limits during the policy term. They are not a substitute for a real valuation, but they reduce drift when markets move.
- Stress-test coinsurance. Ask your broker to model claim outcomes at today’s estimated values. If coinsurance keeps you awake at night, explore agreed value endorsements where available.
- Evaluate blanket limits. If you own several locations and values move unevenly, a blanket limit across the group can provide flexibility at claim time, subject to underwriting and policy conditions.
- Rebuild the business income worksheet. Update revenue, margin, dependency, and lead times. Make sure the period of restoration contemplates current supply chains, permitting timelines, and contractor availability. If a code upgrade is likely, align ordinance or law coverage with that reality.
- Scrutinise sublimits and coverage triggers. Debris removal, increased cost of construction, and equipment breakdown are frequent pressure points in inflationary periods. A modest bump here can be the cheapest protection you buy.
What this means for North Carolina businesses
Inflation and supply friction are national, yet every metro has its own cost curve. If you compare business insurance cost from one renewal to the next without recalculating values, you may celebrate a flat premium while quietly expanding your underinsurance. The price tag on steel, copper, electrical gear, and skilled labor in the Carolinas continues to influence local rebuild budgets, as reflected in industry indices and trade summaries of federal price data.
If you operate in or around Greensboro and keep an eye out for business insurance Greensboro NC, treat that search as a starting point, not a finish line. Ask prospective advisors to walk you through a value-to-limit audit and a coinsurance impact calculation before you bind.
Larger buyers with multiple sites sometimes shop among business insurance companies NC to find broader blanket options or valuation support services. Smaller firms have their own path. If you are updating small business insurance, insist on a current building and business personal property estimate and a fresh business income worksheet, even if the lender has not asked for one.
Many owners turn to a local broker by typing business insurance near me. That works best when you arrive prepared: bring your latest statement of values, any recent contractor quotes, and a list of upgrades or code issues that could push a rebuild over budget.
Bottom line
Underinsurance thrives on stale numbers. Inflation, even when easing, can compound faster than your policy limits if you do not revisit values. The fix is not complicated: measure today’s replacement cost, align limits and time-element coverage with the real world, and verify how coinsurance would treat your next claim. A short valuation exercise now can prevent a long and expensive lesson later.