Commercial property feels steadier than it did a couple of years ago. But a calmer market can disguise a serious problem: too many buildings are still insured for less than it would cost to rebuild them.
That gap is easy to miss. Rebuild cost is not the same as purchase price or market value. It includes demolition, debris removal, labour, materials, professional fees and the cost of meeting current building regulations. And while property values may rise or fall, those reinstatement costs keep moving.
We’re 100% intermediated, so every property policy we write comes through a broker. That puts brokers in the best position to spot when a building, a client’s plans or an old valuation has moved on—and to act before a claim exposes the difference.
The scale of the gap
Of more than 43,000 UK property assessments reported in 2025, 71% of commercial properties were underinsured. Where cover fell short, the average property was insured for only 67% of its true rebuild cost. That is not a marginal discrepancy; it can determine whether a business can recover after a major loss.
The issue is visible in claims too. Industry estimates suggest underinsurance is present in more than 40% of claims, commonly with a shortfall of around 35% to 45%. The moment of discovery is usually the worst possible one: after fire, flood or escape of water, when the customer expects the policy to put the building—and often the business—back where it was.
If an average clause applies, the settlement may be reduced in the same proportion as the underinsurance.
A building insured for half its reinstatement value could therefore receive only half of an otherwise valid partial-loss claim. That is why the sum insured is not just a number on the schedule; it is central to the customer outcome.
Why sums insured drift
Underinsurance rarely starts with one dramatic mistake. More often, an old valuation is rolled forward, a purchase price is mistaken for a rebuild cost, or changes to the property never reach the policy. Index-linking helps, but it cannot correct a figure that was wrong at the outset or capture every material change.
Nor is the pressure going away. BCIS forecasts building costs to rise by a further 13.1% over the five years to the second quarter of 2031, with tender prices rising faster. A sum insured that appears reasonable today can fall behind quietly while everyone assumes the policy is keeping pace.
The practical question is not simply, “Has the sum insured gone up?” It is, “When was the reinstatement value last assessed properly, and what has changed since?”
Buildings do not stand still
A sale, refurbishment, extension, redevelopment, new tenant or change of use can materially alter the cost of reinstatement. So can specialist construction, listed status, sustainability upgrades, new plant and machinery, or the need to comply with regulations that did not apply when the building was first valued.
Vacancy matters as well. An empty building may be awaiting refurbishment or a new occupier, while inspection, security and maintenance arrangements change around it. The increased risk of fire, malicious damage or an unnoticed escape of water is important—but so is the fact that the eventual repair or rebuild may be more complex and costly than the existing sum insured assumes.
Understanding the building is only half the job. Understanding what the owner has done—and intends to do next—is what keeps the insurance aligned to the risk.
What good broking looks like
A focused underinsurance conversation should happen at inception, at renewal and whenever the risk changes. The most useful questions are straightforward:
Is the buildings figure based on reinstatement cost rather than purchase price or market value?
When was the last professional reinstatement cost assessment?
Does the figure include demolition, debris removal, professional fees and current regulatory requirements?
Have there been alterations, changes in use, new tenants, periods of vacancy or additions to plant and contents?
Are stock values, business interruption figures and the indemnity period still realistic?
Where the building is complex, unusual or has not been assessed for several years, a professional reinstatement cost assessment is the strongest evidence. It gives the client a sounder basis for cover and creates a much clearer audit trail than simply carrying last year’s value forward.
Clarity before the claim
Customers need to understand what the sum insured represents and what can happen if it is inadequate. That means explaining the difference between market value and rebuild cost, making the effect of any average clause clear, and documenting the discussion rather than relying on a link buried in policy paperwork.
This is not about shifting responsibility to the broker or the customer. Insurers also need clear questions, prominent wording, useful guidance and consistent claims handling. The best outcome is to prevent the gap arising, not debate it after a loss.
The opportunity for brokers
A softer or steadier property market creates room for a better conversation—one based on adequacy, resilience and recovery rather than price alone. Reviewing reinstatement values is one of the most practical ways a broker can protect a client and demonstrate the value of advice.
Good property insurance starts with an accurate view of what it would take to recover. If one figure on the schedule deserves extra attention, it is the reinstatement value. Get that right before the claim, and the policy has a far better chance of doing what the customer believes it will.
