Underinsurance continues to pose a material risk for UK brokers, with new data from RebuildCostASSESSMENT.com showing that 70% of UK properties had insurance below their true rebuild cost last year.
Although this represents an improvement from the peak seen during the post-COVID-19 pandemic inflation surge, data revealed that the issue remains widespread and increasingly significant. On average, properties are insured for just 66% of the cover required for a full rebuild, leaving policyholders exposed to reduced claims settlements and brokers exposed to questions around advice, documentation and foreseeable harm.
Not the first time
Underinsurance has been a persistent issue in the UK market. Before the COVID-19 pandemic hit, industry estimates typically placed underinsurance levels at around 60% to 70%, driven by infrequent valuations and over-reliance on index-linking. That risk escalated sharply between 2020 and 2022, when supply-chain disruption and construction inflation outpaced policy adjustments. At its height, more than 80% of UK properties were estimated to be underinsured.
Claims experience over the past three years has brought the issue into sharper focus. Losses arising from fire, flood and escape of water have increasingly revealed significant shortfalls between insured sums and actual rebuild costs, triggering average clauses and partial settlements. In many cases, policyholders only became aware of the gap after a claim.
Misunderstanding on market value and rebuild cost
While awareness has improved, 2025 confirmed that misunderstanding remains a core driver, according to the report. Many clients still insure buildings based on market value rather than rebuild cost, despite the two being fundamentally different. Rebuild costs, the report said, must account for labour, materials, professional fees, debris removal and compliance with current building regulations, all of which have shifted materially since 2020.
Outdated valuations also remain a key risk factor. Rebuild costs by early 2025 were estimated to be 35% to 40% higher than in 2020, leaving valuations older than three to five years increasingly unreliable. Index-linking alone has proved insufficient in a period of volatile labour costs, which have continued to rise despite stabilisation in material prices.
FCA's Consumer Duty
From a regulatory perspective, the FCA’s Consumer Duty has raised expectations around proactive intervention.
In 2025, 71% of brokers reported more claims being reduced due to underinsurance, reinforcing that inadequate sums insured are no longer viewed as a purely client issue. Instead, they are increasingly treated as a foreseeable harm that firms are expected to mitigate through clearer communication, regular review prompts and appropriate valuation support.
Certain sectors remain particularly exposed. Care homes showed the highest levels of underinsurance, with 85% insured below rebuild cost, while listed buildings, high-net-worth homes and properties with extensions or sustainability upgrades continue to present elevated risk.
For brokers, underinsurance has moved from a technical concern to a conduct issue. Accurate rebuild valuations are now central to evidencing good outcomes, protecting clients at claim stage and demonstrating compliance in an environment of heightened regulatory scrutiny, the report said.
