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Underinsurance and Rebuild Costs: What Changed in 2023?
Written by Darren Carter. Last Updated on September 24, 2026
Why Rebuild Costs Matter More Than Your Home’s Market Value
Your home is not just a place of comfort and security; for many people, it is also their most valuable asset. However, buildings insurance should normally reflect the cost of rebuilding the property rather than its market value.
This distinction became particularly important during 2023, when changing property prices coincided with sharply higher construction and rebuilding costs. This article looks at why that created a greater risk of underinsurance and what property owners can learn from it today.
Why 2023 Became a Turning Point
During 2023, the UK saw an unusual combination of changing house prices and elevated rebuilding costs. This highlighted an important insurance issue: a property’s market value and its rebuild cost can move in very different directions.
Construction costs had risen sharply during the preceding period. BCIS records show that annual house rebuilding-cost inflation reached exceptionally high levels in 2022 before easing during 2023. Although inflation later moderated, rebuilding costs remained substantially above earlier levels.
This matters because the sale price of a home should not simply be used as its buildings sum insured. A property can fall in market value while still becoming more expensive to rebuild.
Why Underinsurance Still Matters
Underinsurance remains a genuine issue in UK property insurance. BCIS has reported that its presence increased markedly following the Covid-19 pandemic, with labour, materials and other reinstatement costs contributing to the problem.
However, there is no single reliable percentage that describes how many UK homeowners are underinsured. The position varies by property, policy and the way the rebuilding figure was established.
The important point is to check the buildings sum insured against an appropriate current rebuild cost rather than using the property’s market value as a substitute.
The Ramifications of Underinsurance
Underinsurance can create a significant financial shortfall when a property claim is made. However, being underinsured does not automatically mean that a claim will be rejected or reduced in a particular way.
Information Provided to the Insurer
For consumer insurance, policyholders must take reasonable care not to make a misrepresentation when answering an insurer’s questions. If incorrect information has been provided, the insurer’s available remedy depends on the circumstances and what it would have done had it received the correct information.
A policy is not automatically void simply because a rebuild figure later proves to be too low. The insurer may need to show that there was a qualifying misrepresentation and demonstrate how the correct information would have affected its underwriting decision.
Underinsurance and the Average Clause
Some policies contain an Average Clause or another provision dealing with underinsurance. Where an applicable clause is validly used, the insurer may propose a proportional reduction to the claim.
Not every policy contains the same wording, and a proportional reduction should not be assumed automatically. The policy terms, insured value, information provided when the policy was arranged and the circumstances of the claim should all be reviewed.
Reducing the Risk of Underinsurance
There are several practical ways to reduce the risk of an outdated or inaccurate buildings sum insured:
- Check the rebuild figure: Do not assume the property’s purchase price or current market value represents its rebuilding cost.
- Review significant changes: Extensions, conversions, renovations, changes in construction and other major alterations can affect the cost of reinstatement.
- Review the figure regularly: Index linking can help adjust an existing figure, but it may not correct a rebuild value that was inaccurate at the outset.
- Ask for guidance: Speak to your insurer or broker if you are unsure what figure the policy requires.
- Consider a professional assessment: Listed, unusual, high-value, heavily altered or complex properties may benefit from a professional Rebuild Cost Assessment.
If a professional rebuild valuation is needed before a claim occurs, Exactum provides BCIS-based Rebuild Cost Assessments for homeowners, landlords and commercial property owners. Exactum is regulated by RICS and offers desktop and site-based assessments depending on the property.
The conditions seen during 2023 provided a useful reminder that market value and rebuilding cost are not the same thing. Construction costs can continue to change even when house prices move in another direction.
That lesson remains relevant today. Property owners should understand how their buildings sum insured has been calculated and review it when the property or rebuilding-cost environment changes.
If you would like a more detailed explanation of how underinsurance can affect an existing property claim, read our current guide to underinsurance in UK property claims.
Need Help With an Insurance Claim?
If underinsurance has already been raised during your property insurance claim, ILA can help you understand the insurer’s position, the policy wording and the evidence being relied upon.
Call 0800 002 5178 or request a callback for free initial insurance claim advice. Any proposed underinsurance reduction will depend on the policy wording, insured values, evidence and individual circumstances.
Darren Carter
Head of Marketing & Technology, Independent Loss Adjusters
Posted by Darren - Over 15 years' experience in online marketing within the insurance claims sector and works with ILA's loss adjusters and claims professionals to turn practical claims knowledge into clear, useful guidance for policyholders.
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