An additional report conducted by the surveyor firm Barrett Corp & Harrington echoes these concerns. They found that 57% of their clients' buildings were underinsured in their Quarter 3 2025 report, with properties requiring an average increase of approx. 59% in insured values.
Underinsurance occurs when the basis of an insurance policy provides inadequate coverage to meet the reinstatement expenses incurred following property loss or damage. This means your insurer would end up paying less than what you need to cover repair costs, potentially leaving a significant financial gap. The responsibility for declaring and maintaining sufficient cover lies with the policyholder.
To avoid underinsurance, it's essential to insure your property for its correct reinstatement value (or rebuild cost), which is the cost to completely the rebuild the property from scratch – including construction, materials, demolition, site clearance, professional fees and VAT where applicable.
Many property owners mistakenly insure based on market value rather than rebuild cost. Recent economic and geo‑political factors have also increased building and labour costs, meaning many reinstatement values post-2020 may now be outdated.
Most property insurance policies include what is known as the ‘Average clause’, allowing insurers to proportionally reduce claim payments based on the level of underinsurance. This can leave property owners significantly out of pocket. For example, if it costs £200,000 to rebuild your property, but you have elected to insure it for only £100,000 (which represents 50% of its actual rebuild value), the insurer can reduce the total claim settlement by 50%.
The Royal Institute of Chartered Surveyors (RICS) recommends reviewing reinstatement values every three to five years (or more frequently if the property has undergone significant changes). This is done by having a Reinstatement Cost Assessment (RCA) survey of the property undertaken by a qualified surveyor. Index Linking should also be applied at each consecutive renewal, although this does not replace the need for regular professional review.