Board Sets Property Index Inflation Factors for 2027

The MCIT Board of Directors reviewed and approved the inflation index factors for buildings, and contents and property in the open at its June 12 meeting. The approved factors for 2027 are:

• 3.9 percent for buildings
• 3.9 percent for contents and property in the open

Values for scheduled property covered on a replacement cost basis will be adjusted using the approved index factors for the 2027 coverage year.

Inflation Index Factor vs. Contribution Rate

The inflation index is different from the MCIT contribution rate for property coverage.

The inflation index factor adjusts the value of scheduled buildings, contents and property in the open to account for annual changes in the price of materials and construction costs. Whereas, the contribution rate is used to calculate the cost of coverage for that building.

For example, the inflation-adjusted building value and the property coverage rate are two of the factors used to calculate the cost of coverage. So the replacement cost value of the property is just one factor in the cost of a member’s property contribution.

The board of directors sets coverage rates during its July 10 meeting.

Index Factor Protects Available Limit of Coverage for Members

It is important that the replacement cost value of a member’s scheduled buildings, contents and property in the open keep pace with inflation so that there are adequate coverage limits available should a loss occur.

For example, if a building’s value were not adjusted for inflation each year, a member whose facility suffers a total loss could find itself with an available coverage limit below its replacement cost. This would leave the member to fund the difference between the coverage limit and the actual reconstruction cost.

How Values Are Kept Current

To assist members with maintaining appropriate replacement cost values, MCIT contracts with outside appraisal firms every five years to independently appraise each scheduled building currently valued at more than $100,000. In addition, MCIT calculates the property inflation index factor every year to adjust members’ property replacement cost values for inflation in construction costs and materials.

MCIT staff calculates the inflation index factor for buildings by averaging published final construction cost inflation indices from multiple sources for the previous year, including:

U.S. Bureau of Labor Statistics Producer Price Index (PPI)

• Two national property appraisal firms
• A construction analytics consulting firm
• Three large general contractors that specialize in commercial and government buildings

A similar inflation index is calculated for members’ scheduled contents and property in the open, using statistical pricing data from the PPI for a basket of goods commonly covered as contents by MCIT members in 13 categories, such as tools, paper, computer equipment and office fixtures and furniture.