RebuildCost ASSESSMENT.com has recently highlighted the need for regular valuation and the increasing issues of underinsurance.
It has been identified that:
“In 2023, 81% of building were underinsured, on average were covered for just 63% of their correct sum insured now require an increase to reach their true insured value.”
Why buildings sums insured should be higher
With inflation driving a significant widening of the underinsurance gap, it is important to reassess building sums insured.
The insurance industry is no stranger to the issue of underinsurance. Brokers, insurers and risk managers have long been aware that most UK properties are not insured for their true rebuilding costs. However, while the principle of underinsurance is well understood, the scale of the problem today may still not be fully appreciated.
RebuildCost ASSESSMENT.com latest analysis suggests that aligning sums insured on buildings with real-world rebuilding costs since the beginning of 2022 would have required an increase of 68% to 82% over the past three years. That’s not a marginal adjustment it’s a fundamental recalibration of the risk landscape.
Where it started: Underinsurance in 2022
At the start of 2022, RebuildCost ASSESSMENT.com data told them 80% of UK buildings were underinsured, with sums insured averaging just 68% of their correct rebuilding cost. Meanwhile, 14% were overinsured. These figures were concerning at the time, but what’s even more important is how they have been impacted by inflation since then.
The inflation impact: A game changer
Between January 2022 and today, construction and materials costs in the UK have risen by between 25% and 35% cumulatively. This means properties that were already underinsured in 2022 are now even more significantly undervalued. Without proactive adjustments, the industry has been facing an unprecedented widening of the underinsurance gap.
When we apply this inflation to the 2022 figures, we see that:
- Buildings that were covered for just 68% of their correct sum.
- Properties that were overinsured in 2022 have also been impacted by inflation, but their required reduction is far smaller.
- The overall weighted average increase needed across all policies is between 68% and 82%
Time to reassess, before it’s too late
The numbers speak for themselves. UK property insurance needs a strategy for realignment to ensure sums insured accurately reflect today’s cost realities. Political and economic uncertainty suggests inflation is likely to continue driving construction costs ever higher. The longer these corrections are delayed, the worse the problem will become.
It’s about protecting clients from financial disaster. And that, ultimately, is the fundamental purpose of insurance.
For more information on how you can best protect and enrich your business, contact the experts at Portal Broking Group today.