Commercial Insurance Replacement Cost

Commercial Property Insurance and Replacement Cost 


Have you taken an in-depth look into your commercial property insurance recently?  

The Consumer Price Index (CPI) jumped 7.9% over the last year and is the highest rate since January 1982. This inflation has led to increased construction costs, which could mean your current replacement cost coverage is no longer sufficient.  

What Determines Replacement Cost?  

Replacement cost is based on how much it would cost to replace or repair a building with the same or similar materials. Factors that determine this are the cost of hiring contractors and purchasing necessary materials.   

These amounts are all based on today’s labor and construction prices. Therefore, you should review your commercial property replacement costs sooner rather than later.  

If you have not updated your policy in a few years, your replacement cost will be based on outdated labor and construction prices. If an emergency or disaster does occur, your existing commercial property insurance policy may not be able to cover replacement costs.  

What Causes Replacement Cost to Increase?  

Inflation rates have increased significantly during the past year. According to the U.S Bureau of Labor Statistics, there was an 8.5% increase in March, the largest 12-month advance since December 1981. This inflation impacts everything, from food prices to construction costs.   

Supply chain shortages have caused the cost of building materials to increase, and there are also material shortages to consider. Waiting for the necessary tools and materials may also increase the expected timeframe of repairs.  

What Action Should be Taken?  

Primarily, you should take proactive action and look through any existing policies now. Then, take note of anything you need clarified.   

We recommend that you contact us and schedule an appointment. Bring any questions and all relevant documentation. Our agents are here to help you!  

In addition, it may be beneficial to reassess your replacement cost coverage quarterly while current inflation trends continue. 


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Headquartered in Rochester Hills, Mich., Allied Insurance Managers is one of the largest, privately-owned, independent insurance agencies in Michigan.