Property Underinsurance – still a problem in 2025?

Posted November 19, 2025

Across the UK, a high proportion of buildings are underinsured, often by tens of percent. Independent surveys by Rebuild Cost Assessment in the last two years suggest that 76% of UK buildings are not insured for their correct reinstatement cost, down from 81% in 2023 but still “unacceptably high.” A 2025 study by Charterfields of more than 600 sites found 88% were underinsured on buildings and civil works and over a third had values at less than half of the true reinstatement cost.

At the same time, rebuild costs have been a volatile subject and pinpointing the “correct” figure has shown to be difficult. According to the Office for National Statistics, construction price indices and materials data show sharp movements in recent years (for example, precast concrete prices were up 6.3% in the 12 months to September 2024). If your sums insured have not kept pace, you are exposed from an insurance perspective in the event of a claim.

So, what does this actually mean? For any insurance policy covering buildings, this should be set at the full reinstatement cost (also known as the “Declared Value”) and not the market value which can be vastly different. This figure includes demolition, professional fees, debris removal and compliant rebuild to current standards etc.

Potential consequences of Underinsurance

1. Proportional (Average) reduction to claims
   Most property policies include an Average Clause. If you insure for 70% of the true rebuild value, the insurer can pay only 70% of any claim — even for a partial loss.
2. Fair Presentation & Proportionate Remedies
   Under the Insurance Act 2015, commercial policyholders must make a “fair presentation” of the risk. If material facts (including correct values) are not fairly presented, insurers have proportionate remedies which can include reducing a claim or, in serious cases, avoiding the policy all together (known as cancelling ab initio) meaning cover will never have existed.
3. Budget shock during volatile rebuild markets
   Materials and labour costs can move quickly; gaps widen fast if sums insured are not reviewed and a claim cannot be settled in full; the difference will need to be filled by the company as noted above.

So how can these consequences be mitigated as much as possible? Early engagement and working with a broker who has the knowledge and experience in what can be tricky placements is key. At Cape Insurance, we specialise in a variety of Property & Construction placements. Here is how we help owners avoid underinsurance and nasty surprises should a claim arise:

1. Independent Reinstatement Cost Assessments (RCAs): We advise all our clients to commission RCAs for their properties and build sensible review cycles (typically every 3–5 years, more frequently for complex or high-risk assets).
2. Tailored wordings: We negotiate day-one uplifts, declaration-linked or index-linked covers suited to your property type (for example blocks of flats, mixed-use, conversions, listed buildings, non-standard construction, unoccupied, works in progress) and as we are part of the Willis Network we have enhanced wordings with several insurers.
3. Material change discipline: We brief you on fair presentation duties, your responsibilities and help capture additional information such as refurbishments, extensions, changes of use or occupancy through regular communication as these can be the common triggers for gaps in cover.
4. Data-led updates: We monitor industry indices and construction cost trends to have knowledge of what can be done between formal RCAs to ensure you remain protected throughout the policy period and for years to come.

Communication is key, similar to any insurance placement, to enhance our knowledge of your property and to work with the market to provide a policy that meets with your requirements. Clear provision of detail for both current plans and potential diversification allow for underwriters to understand how the risk may develop and mitigate the chances of underinsurance.

For your next property purchase, development or renewal, contact us for a review of your current cover and for advice as to how we could work with you to future proof your insurance coverage.