Energy efficiency improvements in UK buildings are inadvertently increasing the risk of underinsurance, according to new findings from RebuildCostAssessment. The report, Energy Efficiency Retrofits, Rebuild Costs, and Underinsurance, highlights how common upgrades—such as enhanced insulation, heat pumps, and solar panels—are significantly raising rebuild values without corresponding adjustments in insurance cover.
The analysis reveals that 76% of UK buildings are underinsured. On average, properties are only insured for 60% to 65% of their actual rebuild cost, while just 4% are adequately covered. This disparity exposes property owners to the risk of reduced claim payouts under the Average Clause, which allows insurers to scale down settlements if declared sums insured fall short of true reinstatement values.
The report attributes part of the rising underinsurance risk to policy-driven energy efficiency targets. In Scotland, for example, the proposed Heat in Buildings Bill mandates landlords to meet minimum energy standards by 2028 and owner-occupiers by 2033, with a complete transition away from fossil-fuel heating expected by 2045. Similar legislative trends are emerging across the UK.
These policy shifts are accelerating retrofit activity, with comprehensive upgrades often costing more than £60,000 due to high material costs and the need for specialist labour. However, many of these investments are not being reflected in revised insurance policies, leaving property owners exposed to significant coverage shortfalls.
The report further notes that in some instances, the cost of rebuilding an upgraded property can exceed its market value—a scenario that could leave owners underprotected in the event of a total loss.
Brokers are urged to play a proactive role in addressing the underinsurance gap by encouraging clients to review and update their sums insured following major renovations. Professional rebuild cost assessments are recommended to accurately reflect the impact of energy-efficient enhancements on reinstatement values.
The report concludes that regular policy reviews are critical to keeping insurance coverage aligned with evolving property values. Without timely updates, the gap between actual rebuild costs and insured values is likely to continue growing—leaving many property owners financially vulnerable.
