Rising Construction Costs Leave Homes Underinsured in Disaster-Prone Areas

The rising cost of construction labor and materials has left many homes underinsured against damage from extreme weather.

CNBC reports that the cost of construction has risen rapidly over the last two years, and insurance coverage in many areas has not kept pace. Underinsurance in the face of disaster can cause financial ruin for homeowners, including increased mortgage defaults.

In California, one of the regions studied, Corelogic identified 110,000 Southern California properties in very high to extreme risk of wildfire. With average reconstruction cost estimated at $400,000, the risk is more than $46 billion. Those costs are significantly higher than they were just two years ago because of a significant increase in the costs of labor and materials.

So if just 1% of the homes at risk were a complete loss in a wildfire, given the increase in reconstruction costs over the last two years (5.6%), the undervaluation of that 1% would be $25 million if insurance coverage is not current.

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