Steel production is a global market that countless industries rely on to build infrastructure and grow economies. Although, what are the ramifications when the supply chain of steel is interrupted?
While new trading relationships from exiting the European Union present opportunities to many industries, the last 18 months have seen the combined impact of Brexit and Covid-19 lead to considerable repercussions on the procurement of steel.
Pre-2020, it was difficult to fully realise the potential impact of Brexit on the farming and land-based industries. We considered the effect on seasonal labour and the concerns around importing lower quality produce, but not the increase in the cost of some of the raw materials. An increase unseen since 2008. Steel was one such commodity to be on the receiving end from the combination of Brexit and Covid-19. Supply of imported steel has contracted, caused in part by manufacturers placing their furnaces off-line during lockdown when the demand for steel as a raw material reduced dramatically. Once the global economy started to reopen, the requirements for industry outweighed the supply available, causing inflated prices and long waiting times for both raw materials and the products made from them.
The renegotiation of our supply chains has seen procurement of new machinery, spare parts, raw materials and vehicles experience longer timescales, with some backorders stretching to at least six months for new machinery. Competitor foreign markets have also been very active in retaining and obtaining supply for their own domestic markets, leaving shortages of supply which have resulted in increased demand and prices. From an insurance brokers perspective, this is important for us to understand and advise our clients of the implications. Many new buildings whether domestic, industrial, or agricultural, have an element of steel involved in the construction.
When a client is insuring their buildings, it is on the basis that the sum insured is adequate to cover the rebuild of the property on the same basis as before a loss. Although the insurers apply index linking annually, this does not reflect the current market conditions and therefore the sum insured could be inadequate to as much as 25%-40%. The only way to be sure that the sums insured for the buildings are appropriate is to engage the services of a professional valuer.
The consequences of not reviewing the rebuild sums insured are if the insurers find that a property has been underinsured, then the client’s claim settlement is adjusted by the percentage that they have deemed to have “self-insured”. If this is part of the cover agreements at outset and known about then this is acceptable. However, it can lead to a very different outcome if the sums insured have not been considered and addressed in advance.
With factors affecting global markets, we encourage clients who may be affected by increases in raw materials to review their sums insured and adjust them accordingly. That way, we can provide them with adequate cover in the event of a claim.