Inflation is reshaping the cost of doing business in ways that many companies do not fully recognize until they are faced with a loss. The price of rebuilding, repairing, or replacing commercial property has risen sharply in recent years, and for many organizations, insurance coverage has not kept pace with these rapid changes.
To understand the scale of this shift, consider that the producer price index for key construction materials has surged significantly. Steel and aluminum have increased by more than 13% and 22% year over year, respectively, while lumber prices have also experienced notable volatility. These increases are not isolated fluctuations—they reflect a broader trend of rising and unpredictable material costs across the construction and property sectors.
When combined with ongoing labor shortages, supply chain disruptions, and higher financing costs, the overall expense of restoring a property after damage has increased dramatically. Buildings, equipment, inventory, and other essential business assets now cost substantially more to replace than they did just a few years ago.
Yet the real challenge for many businesses is not simply inflation itself—it is the gap between today’s replacement costs and yesterday’s insured values. When coverage limits remain based on outdated assumptions, businesses can unknowingly become underinsured. That gap often remains hidden until a claim occurs, at which point it becomes a costly and stressful surprise.
“That’s where routine property evaluations become essential,” explains Patti Gundlach, Commercial Lines Small Business Underwriting Manager at Central Insurance. “As inflation rises, every component of rebuilding becomes more expensive—materials, labor, financing, and even the cost of repairs. Many businesses don’t realize how much those costs have changed until they are faced with a loss.”
According to Gundlach, routine evaluations help businesses understand how inflation is affecting their insured assets and ensure that coverage reflects current realities. Below, she outlines why regularly reassessing property values is one of the most effective ways to reduce exposure to underinsurance.
Understanding the Risk of Outdated Property Values
Underinsurance is rarely the result of intentional neglect. In many cases, business owners simply have not reviewed their property values in years. Others rely on automatic inflation adjustments built into their policies, assuming those incremental increases are sufficient.
While most commercial property policies include annual inflation guards—often around modest percentage increases for buildings and business personal property—these adjustments do not always keep pace with real-world construction and replacement costs.
“You need to look beyond automatic adjustments and evaluate whether those increases actually reflect today’s market,” Gundlach notes.
Another common misunderstanding involves confusing market value with replacement cost. Market value reflects what a property might sell for based on location, land value, and real estate demand. Replacement cost, however, represents what it would actually take to rebuild the structure from the ground up using current materials and labor.
“Just because a building was purchased for a certain amount does not mean it will cost the same to rebuild it today,” Gundlach explains. “Those are two very different values, and only one of them determines your ability to recover after a loss.”
How Property Evaluations Work
Routine property evaluations—often referred to as insurance-to-value (ITV) reviews or replacement cost estimations—help businesses reassess what it would cost to rebuild their insured property in today’s environment.
These evaluations can be conducted at renewal or at any point during a policy term. Agents and insurers use specialized tools that factor in real-time construction data, regional pricing trends, and detailed property characteristics such as square footage, construction type, internal finishes, safety systems, and geographic location.
“A property in a dense urban environment will almost always have a different replacement cost than a similar building in a rural area,” Gundlach explains. “These tools help create a realistic baseline based on current conditions.”
While buildings are often the primary focus of these evaluations, Gundlach emphasizes that business personal property should not be overlooked. Equipment, machinery, technology, inventory, and raw materials are also heavily affected by inflation and should be reassessed regularly to ensure adequate protection.
Why Timing Matters More Than Ever
Experts recommend reviewing property values at least annually, and no less than every two years. In periods of rapid inflation or market disruption, even short delays between reviews can create significant gaps in coverage.
“If property values haven’t been updated in several years, there is a strong likelihood that the business is underinsured,” Gundlach warns. “Costs have changed too much for outdated numbers to remain reliable.”
In addition to scheduled reviews, businesses should also reassess coverage whenever meaningful operational changes occur. This includes purchasing new equipment, expanding facilities, increasing production capacity, or experiencing sustained increases in operating costs. Rising expenses within the business are often an early signal that insured values may also need adjustment.
The Real-World Consequences of Underinsurance
When insured values fall short of actual replacement costs, the financial consequences can be severe. Insurance policies only pay up to the limits in place, meaning any gap between coverage and real-world rebuilding costs must be absorbed by the business.
“That gap can place a company under tremendous financial strain,” Gundlach explains. “It may affect their ability to rebuild, replace inventory, or continue paying employees during recovery.”
Additional requirements, such as updated building codes, safety regulations, or accessibility standards, can further increase rebuilding costs. If these factors are not reflected in insured values, the shortfall becomes even more significant at the time of a claim.
Routine evaluations help reduce this risk by ensuring that coverage keeps pace with evolving conditions, rather than relying on outdated assumptions.
A Collaborative Approach to Risk Management
At Central Insurance, property evaluations are not treated as a one-time administrative task. Instead, they are part of an ongoing, collaborative risk management process involving agents, underwriters, and loss control specialists.
Loss control professionals may conduct on-site evaluations to assess building conditions, operational changes, and business personal property exposure. These visits often reveal shifts in value caused by rising material costs, new equipment acquisitions, or expanded operations that were not previously reflected in policy limits.
“Our goal is not to impose values,” Gundlach emphasizes. “It is to work together and ensure the numbers accurately reflect reality.”
This collaborative model helps businesses strike a balance between underinsurance and overinsurance, both of which can create financial inefficiencies. It also ensures that coverage decisions are informed by practical, real-world insight rather than static assumptions.
Staying Ahead of Inflation-Driven Risk
Routine property evaluations are one of the simplest yet most effective tools available to help businesses adapt to inflation-driven changes in replacement cost. When performed consistently and with expert guidance, they help ensure that coverage aligns with today’s financial realities—not yesterday’s estimates.
As Gundlach puts it, “The worst time to discover your values are outdated is after a loss. Regular reviews help prevent that situation entirely.”
By proactively reassessing property values and working closely with insurance professionals, businesses can better protect their assets, reduce exposure to underinsurance, and maintain greater financial stability in an increasingly unpredictable cost environment.