Underinsurance is one of the most common - and most costly - issues we uncover when reviewing clients’ policies. Recent industry data shows that over 70% of UK commercial and residential properties are underinsured - in some cases for as little as 60% of their rebuild value.
What does this mean? The amount they’re covered for will be less than the true cost to rebuild. Simply put, more than 7 in 10 UK properties - commercial and residential - don’t have enough cover.
For businesses, landlords and homeowners, underinsurance can turn a serious incident into a financially devastating one.
What Does Underinsurance Mean?
Buildings insurance should cover the full rebuild cost of the property - not its market value. The rebuild cost includes:
- Materials and labour
- Professional fees
- Demolition and site clearance
- External works, outbuildings and access
If your sum insured is set lower than this total, your property is underinsured, even if you believe the figure “sounds about right”.
Why It’s Such a Widespread Problem
Several factors are driving the scale of underinsurance across the UK:
- Rebuild costs have risen sharply - Labour and material prices have increased significantly in recent years. Many policies have not kept pace with these changes.
- Market value confusion - Owners often insure their property based on what it would sell for, rather than what it would cost to rebuild from scratch. These figures are rarely the same.
- Renovations and improvements - Extensions, refurbishments and new equipment can increase the rebuild cost – but the policy isn’t always updated to reflect these changes.
- Auto-renewals - Some companies have policies that are renewed without reviewing the sums insured, allowing a small gap to grow into a major exposure over time.
The Impact at Claim Stage
If a property is underinsured, insurers may apply the Average Clause. This allows the insurer to reduce the claim payout in proportion to the amount of underinsurance – even for a partial loss.
For example:
- True rebuild cost: £1,000,000
- Insured for: £600,000
- Underinsured by: 40%
A £200,000 claim might only result in a £120,000 payout, leaving the owner to cover the £80,000 shortfall.
For many businesses, this gap can be financially devastating.
How to Check If You’re at Risk
Most insurance policies contain a condition for an up to date professional rebuild valuation carried out often within the last 3 years. Failure to have one invariably delays claims and could impact the amount that can be claimed.
- Consider when your buildings sum insured was last reviewed properly - if it’s been several years or if you have made changes to the property, it’s time to reassess.
- A professional rebuild assessment tool – such as Rebuild Cost Assessment can offer an accurate, up-to-date figure. The assessments take into account construction type, location, building complexity, outbuildings and today’s reinstatement costs.
Regular reviews every 3–5 years, with adjustments at renewal where needed, are now widely recommended across the industry.
How Readhunt Can Help
As an independent corporate insurance broker, our role is to ensure your cover genuinely protects you.
We support clients by:
- Reviewing existing buildings sums insured
- Identifying potential underinsurance risks
- Arranging professional rebuild cost assessments
- Working with insurers to ensure cover aligns with true rebuild values, whether underinsured or overinsured, neither benefits business owners.
- Advising on business interruption sums insured as part of a complete protection review
Our focus is on clarity, accuracy and good value when it comes to your policy, ensuring that should the worst happen, your policy responds fully.
Is It Time to Review Your Sums Insured?
If you’re a business owner, landlord or property manager and would like to check whether your properties are valued correctly, our team is here to help.
A quick conversation can highlight whether a reassessment is worthwhile - and potentially prevent major issues later.
Get in touch with the Readhunt team here to arrange a review or discuss concerns about underinsurance.