Upgrades aimed at improving energy efficiency in UK buildings have led to increased rebuild costs and widened the underinsurance gap, according to a report by RebuildCostAssessment.
The report, Energy efficiency retrofits, rebuild costs, and underinsurance, examines how insulation, heat pumps and solar panels have raised reinstatement values. Many property owners have not updated their insurance cover in line with these changes, heightening the risk of underinsurance.
“These upgrades add costs but if the insurance cover stays the same, the risk of underinsurance increases, and with most UK buildings already underinsured, the gap is widening fast,” said Sharon Masters, surveyor & technical lead at RebuildCostAssessment.
Masters warned that even a retrofit costing £50,000 could significantly alter rebuild values. “Unfortunately, most buildings insurance policies aren’t keeping up, leaving property owners exposed,” she said. Where insurers were not informed of changes, property owners could face reduced claim settlements.
RebuildCostAssessment data indicated that 76% of UK buildings were underinsured. On average, buildings were covered for only 60% to 65% of their rebuild cost, with just 4% insured for the correct amount. Under the Average Clause, claim payments could be reduced proportionally if sums insured were too low.
The report linked growing underinsurance to upcoming energy policy changes. In Scotland, the proposed Heat in Buildings Bill would require landlords to meet minimum energy standards by 2028 and owner-occupiers by 2033. A complete phase-out of fossil-fuel heating was expected by 2045. Similar initiatives were underway elsewhere in the UK.
These requirements led to a rise in retrofit activity. The cost of a full upgrade could exceed £60,000, driven by more expensive materials and specialist labour. The report noted that many of these changes were not reflected in existing insurance policies.
It also found that, in some cases, the cost of rebuilding a retrofitted property exceeded its market value, increasing the risk of a shortfall in the event of a claim.
Brokers were encouraged to help clients reassess their sums insured, particularly after significant renovations. The report recommended using professional rebuild cost assessments and explained that improvements such as energy-efficient insulation or heating systems could materially increase reinstatement costs.
It concluded that regular reviews were essential to ensure insurance policies kept pace with energy-driven changes to building structures and systems. Without such updates, the underinsurance gap would likely continue to grow.
