Underinsurance is more common than ever for UK businesses in 2026. Here’s why rising costs, softening premiums and auto-renewal are creating a hidden gap, and what to do before your next renewal.
If you renewed your business insurance in the last 12 months without properly reviewing it, there is a reasonable chance you are underinsured.
That is not a scare tactic. It is a reflection of what is happening in the UK insurance market right now, and what we find when we review policies for businesses who assumed everything was fine.
Here is what is going on, why it matters, and what you should do about it.
What underinsurance actually means
Underinsurance happens when the value declared on your insurance policy no longer reflects the reality of your business.
It might mean your buildings are insured for less than it would actually cost to rebuild them. It might mean your declared turnover is lower than your actual turnover. It might mean your policy limits were set years ago and have never been updated. It might mean your business has changed, grown, or added new activities that were never reported to your insurer.
The consequence of underinsurance is not that your insurer refuses to pay a claim. It is that they pay out proportionally less than you need.
Here is how that works in practice. If your building is insured for 50% of its actual rebuild cost and you make a claim, your insurer may apply what is known as the average clause and pay out only 50% of your claim, even for a relatively minor loss. A claim you expected to cover £100,000 of damage pays out £50,000. The gap comes out of your business.
Why underinsurance is getting worse in 2026
Several things are happening simultaneously that are making underinsurance more common, not less.
Rebuild costs have risen significantly. UK commercial rebuild costs rose 3.8% in the year to January 2025, driven by higher labour costs, increased employer National Insurance contributions, and the National Living Wage. If your buildings were last valued two or three years ago, the declared value on your policy may be materially lower than what it would actually cost to rebuild today.
An Allianz survey found that only 52% of business owners knew the rebuild value of their commercial property, and only 59% of those had obtained a professionally qualified valuation. That means a significant proportion of businesses are insuring their property based on a figure they have essentially guessed.
The insurance market is softening. After several years of rising premiums, insurance costs have started to come down. That sounds like good news, and in some ways it is. But a softening market creates a specific risk: businesses renew their policies, see a lower premium, and assume everything is in order. They do not ask whether the declared values and limits still reflect their business. They just accept the renewal.
A lower premium does not mean better cover. It may simply mean the market has moved. The underlying question of whether your policy reflects your business remains unanswered.
Rising business costs are pushing some businesses to cut cover. The CBI has warned that UK businesses are approaching a cost tipping point, with employer National Insurance contributions now the single largest component of private sector business taxes. When costs are under pressure, insurance is one of the areas where businesses look to save money. Reducing declared values, accepting lower limits, or simply not reviewing cover properly are all ways that underinsurance creeps in.
Auto-renewal does not ask the right questions. When your policy renews automatically, it carries over the same declarations from the year before. It does not ask whether your turnover has grown. It does not ask whether you have taken on new staff, new premises, or new contracts. It does not check whether your rebuild costs have increased. It simply rolls over what was there before.
For a business that has stayed exactly the same, that might be fine. But most businesses change. And the ones that change without updating their insurer are the ones that find out at claim time that their cover no longer fits.
The areas where we find gaps most often
When we review a business’s insurance, these are the areas where underinsurance shows up most frequently.
Buildings and reinstatement values. The most common form of underinsurance. The declared rebuild cost has not kept pace with actual construction costs. This is particularly common for businesses that have owned their premises for several years and have never had a professional reinstatement cost assessment carried out.
Business interruption. Business interruption cover pays out if you cannot trade following an insured event. But the cover is only as good as the declared figures. If your turnover has grown since you last reviewed your policy, your business interruption cover may not reflect your current income. And if the indemnity period, the length of time the policy pays out, is too short to allow you to actually recover and get back to normal trading, you will face a shortfall.
Employers’ liability. If your workforce has grown, changed, or now includes temporary, seasonal, or contract staff who were not declared when the policy was taken out, your employers’ liability cover may not reflect your current position.
Stock and contents. For businesses that hold stock, the declared value needs to reflect peak stock levels, not average ones. If you hold significantly more stock at certain times of year and your policy is based on an average figure, you may be underinsured at exactly the times when a loss would be most costly.
New activities and services. If your business has added a new service, started operating in a new sector, or taken on contracts that involve activities not covered by your existing policy, those activities may not be covered at all.
What a proper review looks like
A proper insurance review is not the same as a renewal conversation.
It starts with the business, not the policy. What has changed in the last 12 months?
- Has turnover grown?
- Have you taken on new staff?
- Have you moved premises or started operating from additional locations?
- Have you added new services or taken on new contracts?
- Have you invested in new equipment or refurbished your premises?
Only once those questions are answered does it make sense to look at the policy. At that point, the question is whether the declared values, limits, and scope of cover still reflect the business as it actually is today.
For commercial property, that means checking whether the reinstatement value is still accurate, ideally with a professional valuation. For business interruption, it means checking whether the declared turnover and indemnity period reflect current trading. For liability covers, it means checking whether the scope of activities and the workforce are accurately declared.
None of this is complicated. But it does require someone who takes the time to ask the right questions.
The bottom line
Underinsurance is not something that happens to careless businesses. It happens to businesses that grow and change, and whose insurance does not keep up.
In 2026, with rebuild costs rising, premiums softening, and auto-renewal making it easy to just let policies roll over, the conditions for underinsurance are particularly common.
The time to find out whether your cover still fits is before something goes wrong. Not after.
We offer a free, no-obligation policy review for UK businesses. If you would like to know whether your current insurance reflects your business as it actually is today, call us on 01829 706 436 or email info@portalinsurance.co.uk.