We all know that home insurance can be complicated — whether your clients are shopping for it, renewing it, or making a claim for property damage, there are likely going to be some hurdles to overcome at some point. Research shows that in 2025, it’s not just the cost of policies that’s got people making the wrong decisions with their insurance policies — underinsurance is also throwing a big spanner in the works for policyholders.
So, what’s being done about it, and how can you help your clients to make sure they’re fully protected for all eventualities? Here’s our take on one of this year’s biggest challenges…
Underinsurance: The big picture
Recent survey data shared by Rebuild Cost Assessment shows that 76% of the buildings in the UK are underinsured. Whilst this figure has fallen from the all-time high of 83% recorded in 2022, the gap between insurance levels and true rebuild cost has continued to widen in recent years due to inflation-related increases in construction costs, and there are no signs as yet that this gap is getting any smaller.
A subsequent survey conducted by Howdens suggests that, on average, the level of underinsurance for properties sits around 65%, meaning home owners and commercial property owners are paying for policies that won’t cover their full rebuild cost, resulting in significant financial losses for policyholders in the event of a claim.
Figure 1: The level of property under/overinsurance in the UK by region. Source: RebuildCostAssessment.com
What causes underinsurance?
1) Outdated property values
Many homeowners set their insurance based on the market value of their home, rather than the actual rebuild cost, which can be lower or higher than the market value, but is higher in most cases.
2) Unreported renovations
Another common cause of underinsurance is when homeowners make changes or improvements to their home and forget or neglect to inform their insurance provider. If significant changes have been made to a property, such as building an extension or carrying out major refurbishment work, it’s vital that the policy is updated to reflect these changes and ensure that the full rebuild cost has been accounted for.
3) Inflation of rebuild costs
Inflation has increased costs across the board, and the construction sector definitely isn’t unaffected. The cost of building materials and labour has surged in recent years, and many insurance policies may not be keeping pace with the rate of inflation, leaving properties underinsured if the policy sum isn’t regularly reviewed and updated.
How to help your clients protect themselves against underinsurance
1) Educate your clients about underinsurance
Recent research undertaken by Meshed shows that the majority of policyholders don’t know what underinsurance means. Make sure your clients aren’t amongst them.
2) Recalculate building costs
With inflation constantly impacting the cost of things, make sure your clients know to review and adjust their home’s rebuild cost on a regular basis.
3) Keep insurers informed
Remind clients to notify their insurer whenever they invest in home improvements, extensions, or renovations, as these changes could increase the property’s value and rebuilding costs.
