Many UK homeowners are unknowingly underinsured, with studies from RebuildCostAssessment.com indicating that up to 80% of properties are insured for less than their rebuild cost. On average, these homes are insured for only 68% of their actual rebuild value. This trend poses significant financial risks, especially during claims following catastrophic damage, as insurers may apply the Condition of Average Clause, reducing payouts proportionally to the underinsurance.

Why Underinsurance Is Rising

Several factors contribute to the growing issue of underinsurance:

1. Rising Construction Costs: The costs of materials and labour have risen sharply, with building costs increasing by 10–20% in some recent years.
2. Inadequate Rebuild Estimates: Many homeowners rely on outdated or overly simplistic rebuild estimates when insuring their properties, neglecting accurate reassessments.
3. Inflation and Renovations: Insurance values often fail to keep pace with inflation or significant property improvements, leaving gaps in coverage.

Key Risks of Underinsurance

1. Reduced Claims Payouts:
   If a homeowner is underinsured, their insurance provider may apply the Condition of Average Clause. This reduces the payout proportionally to the level of underinsurance. For example, if a property is insured for £500,000 but the rebuild cost is £600,000, the policy only covers 83% of the property's value. Consequently, a £300,000 claim would result in a payout of only £249,00.
2. Out-of-Pocket Expenses:
   Homeowners may need to cover the shortfall themselves, potentially leading to significant financial strain. This is particularly challenging if the underinsurance was unintentional, as many homeowners are unaware of rising rebuild costs due to inflation or property renovations.
3. Claim Disputes and Delays:
   Underinsurance can lead to disputes with insurers over the adequacy of coverage. This often delays claim processing and repair or rebuilding efforts, increasing stress for the homeowner.
4. Increased Vulnerability During Economic Changes:
   With inflation driving up construction costs and supply chain disruptions leading to higher prices for materials, underinsured homeowners are especially vulnerable to rising rebuild costs that exceed their policy coverage.
5. Loss of Property Value:
   In cases where a claim doesn’t cover the cost of repairs or rebuilding, the property’s value may decrease, affecting long-term financial stability.

Examples of Underinsurance Impact

• Scenario 1: A homeowner insures their property for £400,000 based on a market value estimate. A fire destroys the home, and the rebuild cost is assessed at £500,000. Due to underinsurance, the claim payout is reduced by 20%, leaving the homeowner to find £100,000 themselves.
• Scenario 2: After major renovations, a property’s rebuild value increases significantly, but the homeowner doesn’t update their policy. When a storm causes extensive damage, the outdated coverage leaves them unable to afford repairs.

How Homeowners Can Mitigate These Risks

1. Regular Reassessments: Rebuild cost assessments (RCAs) conducted every 3–5 years or after significant renovations ensure accurate coverage level.
2. Professional Valuations: Engaging RICS-qualified surveyors for RCAs provides accurate rebuild values that reflect material, labour, and compliance costs.
3. Understanding Policy Terms: Homeowners should regularly review their policy to ensure it aligns with current rebuild costs, including adjustments for inflation.

How RCAs Help

Insurers are increasingly requesting homeowners to undertake professional Reinstatement Cost Assessments (RCAs). These evaluations, typically conducted by RICS-qualified surveyors, ensure properties are insured at the appropriate rebuild value. Unlike market valuations, RCAs account for the cost of reconstructing a home, including demolition, labour, materials, and compliance with updated regulations.

How Survey Networks Can Assist Homeowners

Survey networks play a crucial role in addressing underinsurance and mitigating risks for homeowners. Here’s how they can help:

1. Professional RCA Services: Offering accurate, up-to-date assessments by qualified surveyors ensures properties are correctly valued for insurance purposes.
2. Education and Awareness: Educating clients about the risks of underinsurance, such as reduced claims payouts, empowers homeowners to make informed decisions.
3. Regular Reassessments: Encouraging homeowners to update RCAs every 3–5 years or after significant renovations ensures coverage keeps pace with changing costs and circumstances.

Benefits for Homeowners

By working with professional survey networks, homeowners can:

• Avoid costly shortfalls during claims.
• Ensure peace of mind knowing their property is adequately insured.
• Potentially save money by avoiding over insurance.

Survey Network are positioned to support homeowners in navigating the complexities of reinstatement valuations, reducing their risk of underinsurance and fostering long-term security should the worst happen.

‍