The Financial Conduct Authority’s response to a Which? super-complaint on home insurance claims has underlined the importance of addressing rebuild cost selection and underinsurance alongside claims-handling practices, according to the Building Cost Information Service.
BCIS executive director Richard MacLean (pictured) supported the FCA’s assessment that improving consumer understanding remains central to better outcomes. He said insurers are investing in clearer sales processes, improved management information, and greater transparency for customers.
The FCA said it would expand work already under way to improve consumer outcomes in home insurance. This includes stronger oversight of claims handling and further scrutiny of how policies are sold and explained to customers.
The regulator reiterated its focus on the Consumer Duty, highlighting the need for clearer information and better support throughout the insurance journey.
“Insurers are clearly moving to strengthen how policies are sold and explained, in line with Consumer Duty expectations,” MacLean said. “That work is necessary, but it also comes with increased operational costs for insurers in an already competitive market.”
He said rebuild cost selection represents a common weakness in the customer journey.
“Many homeowners continue to rely on market value, outdated sums insured or informal ‘rules of thumb’ that can be found online, rather than robust assessments of reinstatement cost,” MacLean said. “Rebuild cost is not the same as market value, and generic or ballpark estimates rarely reflect the real cost of repairing or rebuilding a home. Where a property is underinsured, claims outcomes can be challenging even when insurers are applying policy terms correctly.”
MacLean emphasised policyholder responsibility. “Ultimately, policyholders have a responsibility to ensure the sum insured reflects the true cost of reinstatement,” he said.
The FCA cautioned against reading claims acceptance rates in isolation, noting lower rates in home insurance partly reflect policy complexity and gaps in consumer understanding.
MacLean said this distinction matters, as underinsurance can result in claims being reduced or declined without any failure in claims handling.
BCIS data show rebuilding costs continue to rise. The ABI/BCIS House Rebuilding Cost Index, which measures changes in the cost of rebuilding a typical house using current prices for labour, materials and plant, increased 3.8% between December 2024 and December 2025.
“As construction costs continue to increase, keeping sums insured aligned with robust, construction-specific reinstatement cost data is essential,” MacLean said. “Better understanding at the point of sale, combined with regular review, will be key to reducing disputes and improving outcomes for both insurers and customers.”
