Construction The increase in costs will also affect those residents who do not build anything, as the amount of insurance indemnity received in case of real estate damage will not be able to cover the real construction costs, the representatives of the Latvian branch of the insurance company Compensa Vienna Insurance Group said.
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Ministry of Economy The forecasts obtained in the study on the forecasted changes in labor and construction material costs for 2021-2025 indicate that construction costs in 2021 will increase by a record 6.6% compared to 2020, reaching the highest increase in the last nine years.
Due to the Covid-19 pandemic, the volume of construction in Latvia has significantly increased. According to a study by the Ministry of Economics, in the construction of residential and non-residential buildings in 2021 alone, an increase in the cost of construction materials in the amount of 14.7-14.8% must be taken into account.
There is also an increase in labor wages and demand in the construction sector in others European Union (EU) countries. Already under Central Statistical Bureau In August alone, compared to the same period last year, prices for construction materials increased by 12.8%. The costs of construction materials are most significantly affected by the prices of metal and timber, as well as the total volume of construction.
Raitis Čaklis, the head of the risk underwriting department of the Latvian branch of Compensa Vienna Insurance Group, explained that when switching the insurance contract, the same amount of property insurance is often left as it was when concluding the insurance contract for the first time. However, previous insurance amounts no longer correspond to real construction prices.
“Consequently, if an accident occurs and the property is insured for too low a value, the insurance payment does not cover all the losses incurred. So families, as well as companies that have suffered losses, for example in case of fire, will not receive the full amount of property restoration,” Chaklis.
The expert emphasized that it is important to make sure when concluding an insurance contract that the sum insured of the property is sufficient to restore the property to the condition it was in before the accident occurred.
Čaklis informed that the restoration of property damaged as a result of floods, fires or other accidents has now become much more expensive. Finding a construction company that will restore the property for less than 1,000 euros per square meter is very difficult. On the other hand, if the policyholder’s insurance amount is 700 euros per square meter, he will have to cover this 30% difference himself, thus significantly increasing the financial burden on the household.
In order to avoid the risk of incomplete insurance, taking care of the security of their real estate, policyholders should review existing insurance policies and make sure that the amount of insurance chosen is sufficient in the light of changes in the construction market. It would also be desirable not only to estimate how much the renovation of real estate would cost today, but also to take into account natural inflation and increase the sum insured in advance, by an average of 5-10% of the present value of the renovation of the property.
Last year, Compensa Baltic Insurance claims in the amount of 70.3 million euros were reported in the countries, as opposed to 41.9 million euros in 2019.
The Latvian branch of Compensa is part of the Vienna Insurance Group. At present, “Vienna Insurance Group” in Latvia also owns a risk insurer “BTA Baltic Insurance Company “(BTA), which added InterRisk Vienna Insurance Group (formerly” Baltikums Vienna Insurance Group “) at the end of 2017.” Vienna Insurance Group “also includes the Latvian branch of the life insurer” Compensa Life Vienna Insurance Group “.
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