The cost to replace some of the homes destroyed or damaged by last week’s Colorado wildfire in the suburbs of Denver and Boulder could become more than insurance companies are going to pay out — in some cases by hundreds of thousands of dollars.
According to the Wall Street Journal, the Marshall Fire caused more than $1 billion in damage while destroying nearly 1,000 homes. But government officials along with insurance and construction industry experts say higher construction costs caused by stretched-out builders and supply-chain disruptions could turn what some homeowners thought to be reasonable insurance policies into those that fall well short of providing enough money to rebuild.
“Predictability around cost is just almost impossible right now,” David Sinkey, chief executive of the Louisville, Colorado-based builder Boulder Creek Neighborhoods, told the publication. “I think what’s starting to dawn on a lot of people is the insurance coverage is going to be a lot lower than the current cost to build.”
Colorado Insurance Commissioner Michael Conway added that along with normal cases of underinsurance, in which homeowners choose policies that simply don’t cover enough in an attempt to save on premiums, inflation can play a role in how much of the rebuild costs a policy will cover — but it may be too soon to tell which way those costs are going.
“There is so much that will be in flux about inflation, building costs, labor costs that when we get to the point we are rebuilding these homes, the world will likely look much different,” he told the newspaper.
For the most part, homeowners are expected to review and update their policies to ensure the cost of a home replacement will be covered even in the event of rising prices, as most carriers have stopped offering guarantees to pay the full cost of rebuilding. Instead, the publication says, when a shortfall occurs, companies pay a fixed percentage of the home’s insured value.
Many insurers still offer some form of inflation protection, but they still insist their clients update their polices to take expansion or remodeling into account.
[Wall Street Journal] — Vince DiMiceli