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Underinsurance in 2026: Why Your Property’s Rebuild Value Almost Certainly Needs Reviewing

Tue, 02 Jun 2026 13:58:34 GMT

Three in Four UK Properties Are Underinsured. Is Yours One of Them?

It is one of the most widespread problems in UK property insurance, and one of the least discussed. Industry estimates consistently suggest that around 76 per cent of UK properties are insured for less than they would actually cost to rebuild — a gap that has widened significantly over the past three or four years as construction costs have risen sharply and as many property owners have continued to renew their insurance without reviewing the underlying figures. If your buildings insurance sum insured was set two or three years ago and has not been reviewed since, there is a reasonable chance you are underinsured. This article explains what underinsurance means in practice, how the average clause works, why the problem has become more acute in 2025 and 2026, and what property owners,

landlords and block managers should do about it.

What is underinsurance and why does it matter?

Underinsurance occurs when the sum insured on a buildings policy — the figure against which any claim will be assessed — is lower than the actual cost of rebuilding the property to its original specification. It is important to understand that the sum insured should reflect the reinstatement cost of the building, not its market value, not the price you paid for it and not what a mortgage lender valued it at. Reinstatement cost is the full cost of demolishing any remaining structure after a loss, clearing the site, and rebuilding the property from the ground up using current materials, labour rates and professional fees. In many parts of the

country, this figure is quite different from market value. A Victorian terrace in Brighton might sell for £500,000 but cost £650,000 to rebuild from scratch. A listed building might cost even more to reinstate, given the specialist materials and tradespeople required. When the sum insured falls below the true reinstatement cost, the insurer is entitled to apply what is known as the average clause to any claim made under the policy. Understanding the average clause is essential for any property owner.

How the average clause works — and why it is more damaging than most people realise

The average clause does not just affect total loss claims. It applies to every claim made under a policy where the property is underinsured — including partial claims for relatively modest losses. Here is how it works in practice. Suppose your property has a true reinstatement cost of £800,000 but is insured for

£500,000 — 62.5 per cent of the correct figure. If you make a claim for £80,000 following a fire in the kitchen, the insurer will apply the average clause and pay only 62.5 per cent of that claim: £50,000. You absorb the remaining £30,000 as an uninsured loss. For larger claims, the gap is proportionally larger. A £300,000 claim on the same property would result in a settlement of £187,500, leaving you £112,500 out of pocket. This is not a worst-case scenario. It is the standard contractual position under most UK buildings insurance policies. The insurer is not acting improperly by applying average — they are doing precisely what the policy terms permit. The responsibility for setting an accurate sum insured rests with the policyholder, and a broker who reviews that figure properly at each renewal.

“The average clause applies to partial claims as well as total losses. A property insured at 60% of its true rebuild cost will receive only 60% of every claim made — regardless of the size of the loss.”

Why rebuild costs have risen so sharply since 2022

The underinsurance problem has become considerably more acute in the past three years for reasons that are well documented. UK construction costs have been driven upward by a combination of factors: post-pandemic supply chain disruption, labour shortages across the trades, significant inflation in the cost of materials including structural timber, concrete, insulation and roofing materials, and increases in the professional fees associated with design, project management and building control. According to data from the Royal Institution of Chartered Surveyors, UK rebuild costs rose by more than 15 per cent between 2022 and 2025. For a property whose sum insured was last reviewed in 2021 or 2022 and has simply been indexed upward by the policy’s standard annual inflation adjustment — which is typically set at a flat percentage rather than a figure that tracks actual construction cost inflation — the gap between the insured value and the true

rebuild cost may be material. This is not a problem confined to older or lower-value properties. It affects residential blocks, commercial premises, portfolio landlord properties and high-value homes equally. Any property whose reinstatement value has not been properly assessed in the past two to three years is at risk.

The particular risk for blocks of flats

Underinsurance is a sector-wide problem, but it is particularly acute for residential blocks. Blocks of flats typically have higher reinstatement costs relative to their market value than standard residential properties, especially where the block is older, uses non-standard construction, includes communal facilities such as lifts, plant rooms or concierge areas, or is located where labour costs are elevated.

The Building Safety Act 2022 has added a further layer of complexity. Blocks that have undergone fire safety remediation works — cladding replacement, fire suppression installation, structural assessment and remediation — have seen their reinstatement cost increase as a result. Any block that has had significant building works carried out in the past three years should have its sum insured reviewed as a matter of priority. RTM company directors and managing agents have a duty to leaseholders to ensure the building is properly insured, and an out-of-date reinstatement value is a breach of that duty.

The EPC effect: an underinsurance risk most landlords have not considered

A further and less widely understood driver of underinsurance in 2025 and 2026 is the impact of energy efficiency improvement works on rebuild costs. Many landlords have invested in heat pump installations, improved insulation, double glazing upgrades and other energy efficiency measures across their portfolios in response to evolving EPC requirements. Each of these improvements increases the reinstatement cost of the property. If you have spent £15,000 on energy efficiency upgrades to a rental property and the sum insured on your landlord policy has not been updated to reflect that investment, you are underinsured by that amount from the moment the works are complete. Multiply that across a portfolio of ten or fifteen properties and the aggregate underinsurance

figure becomes significant.

What you should do

The most important step any property owner can take is to have their reinstatement values reviewed by a specialist broker, or for complex or high-value properties, by a specialist reinstatement cost assessor. For most investment properties, a broker-led review using current BCIS (Building Cost Information Service) data will identify whether the existing sum insured is adequate and by how much it needs to be increased if not. Haxon recommends that all clients have reinstatement values reviewed at each renewal as a matter of course, and more frequently where the property has been subject to significant works, where the asset has particular construction characteristics, or where the sum insured has not been professionally assessed in the past two to three years. It is one of the simplest and most important steps a property owner can take.

Frequently asked questions

How do I find out the correct reinstatement value for my property?

For most standard residential properties, the BCIS rebuild cost calculator provides a good starting point. For blocks of flats, commercial properties, listed buildings or any property with non-standard construction, a formal Reinstatement Cost Assessment carried out by a chartered surveyor is the most reliable approach. Haxon can guide you through this process and will highlight any concerns about your current sum insured as part of a policy review.

Does my insurer’s annual inflation adjustment protect me from underinsurance?

The standard annual inflation adjustment applied by most insurers is a flat percentage — often around three to five per cent. In years where construction cost inflation has been running at twelve to fifteen per cent, a flat adjustment of this size does not keep pace with the actual movement in rebuild costs. It reduces the rate at which underinsurance accumulates, but it does not eliminate the risk. A proper review of the reinstatement value is the only reliable protection.

What is the difference between market value and rebuild cost?

Market value is what your property would sell for on the open market. Rebuild cost — also called reinstatement cost — is what it would cost to demolish what remains after a loss and rebuild the property from the ground up. These figures can be very different. In many parts of the country, rebuild cost exceeds market value for older properties. In prime locations, market value may significantly exceed rebuild cost. For insurance purposes, only the rebuild cost is relevant.

Can I be penalised for underinsurance even on a small claim?

Yes. The average clause applies to claims of any size. A £10,000 claim for escape of water on a property that is thirty per cent underinsured will result in a settlement of £7,000. The shortfall is your uninsured loss, regardless of how straightforward the claim otherwise is.

Haxon reviews reinstatement values as part of every annual renewal for our property and landlord clients. If you have not had a rebuild cost review recently,

we would welcome the conversation.

The Renters’ Rights Act 2025: What Every Landlord Needs to Know About Their Insurance

Tue, 02 Jun 2026 13:37:12 GMT

Section 21 Is Gone. Is Your Landlord Insurance Ready?

The first phase of the Renters’ Rights Act 2025 came into force on 1 May 2026 — and with it arrived the most significant reform to the private rented sector in England since the Housing Act 1988. For landlords across Sussex and beyond, the headline change — the abolition of Section 21 ‘no-fault’ evictions — has rightly dominated the conversation. But there is a quieter, equally important question that many landlords have not yet asked: what does the Renters’ Rights Act mean for my insurance? The answer is more significant than most landlords expect. The Act does not simply change tenancy law. It changes the financial risk profile of owning a residential investment property in a way that makes several elements of landlord insurance substantially more important than they were before.

What has changed under the Renters’ Rights Act 2025?

From 1 May 2026, all assured shorthold tenancies in England have automatically converted to open-ended periodic tenancies. Fixed terms no longer exist. Tenants can leave at any time on two months’ notice. Landlords, by contrast, can only end a tenancy by relying on one of the statutory grounds set out in Section 8 of the Act — and those grounds have been modified in ways that matter considerably to landlords dealing with rent arrears. The most important change for Insurance purposes concerns Ground 8, the rent arrears ground. To serve a valid notice under the new regime, a tenant must owe at least three months’ rent — up from the previous two months — and that level of arrears must be maintained both at the date the notice is served and at the date of the court hearing. If a tenant makes a partial payment before the hearing date that brings the arrears below three months, the court cannot order possession. The landlord must start the process again. This is not a theoretical risk. It creates a very real scenario in which a landlord can find themselves in possession proceedings for six, eight or even twelve months while a tenant makes occasional small payments to frustrate the process. During that entire period, the landlord’s rental income may be significantly reduced or absent entirely.

The abolition of Section 21 means landlords can no longer use the ‘no-fault’ route as a backstop. With possession proceedings now requiring three months’ arrears maintained throughout, the financial exposure from a single defaulting tenancy has increased materially.

Why rent guarantee insurance has become essential for landlords

Before the Renters’ Rights Act, many landlords took the view that the Section 21 route provided an adequate backstop. If a tenant fell significantly into arrears, you served a Section 21 notice and recovered the property within a couple of months. The financial exposure, while unpleasant, was limited. That backstop no longer exists. With possession proceedings now requiring a demonstrated and sustained period of significant arrears, followed by a court process that could stretch considerably further than it did previously, the financial exposure from a single defaulting tenancy is materially greater than it was before May 2026. Rent guarantee insurance — sometimes called rent protection insurance or tenant default insurance — covers the rental income a landlord loses when a tenant stops paying rent. Most policies begin paying out after an initial period of arrears, typically one month, and continue for a specified period, commonly up to twelve months, while the situation is resolved or while possession proceedings are underway. Many policies also include legal expenses cover for the cost of those proceedings themselves. For a landlord with a single investment property, one month of unpaid rent was manageable. A period of six to twelve months of absent income, combined with the legal costs of extended possession proceedings, is a very different proposition. For a portfolio landlord with multiple properties, the cumulative risk of even two or three simultaneous arrears situations is significant.

Legal expenses cover: the element most landlords are missing

The shift from Section 21 to Section 8 possession has significantly increased both the complexity and the cost of recovering a tenanted property. A Section 21 process, while not without cost, was relatively straightforward. A contested Section 8 possession claim, particularly where a tenant makes partial payments to frustrate the process or disputes the grounds, can require multiple court hearings, specialist legal representation and months of ongoing legal management. Legal expenses insurance covers the cost of legal representation in landlord and tenant disputes, possession proceedings, rent recovery actions and related matters. Many landlord insurance policies include a legal expenses element as standard, but the limits and the scope of cover vary considerably between policies. Landlords should check specifically that their legal expenses cover extends to possession proceedings under the new Section 8 grounds, and that the policy limit is sufficient to cover extended proceedings. For portfolio landlords managing multiple properties, standalone legal expenses insurance arranged across the whole

portfolio is often the most cost-effective and comprehensive approach.

Property owners liability: an increased risk under the new regime

The Renters’ Rights Act also introduces stronger enforcement of property standards and gives tenants greater rights to challenge the condition of their accommodation. This creates an increased risk of liability claims arising from property defects, damp and mould, and other maintenance issues. The Act introduces Awaab’s Law provisions into the private rented sector, imposing legally binding timeframes on landlords to investigate and remedy serious hazards.

Property owners’ liability insurance covers claims made against the landlord by tenants, visitors or others for injury or property damage arising from the condition of the property. Landlords should review their liability limits in light of the strengthened property standards regime the Act introduces, particularly where older properties are involved or where there are known maintenance issues.

What portfolio landlords in Sussex should do right now

The Renters’ Rights Act is not a change that can be noted and reviewed at the next renewal. For landlords with multiple properties, the cumulative implications of the Act represent a genuine and material change in the risk profile of the portfolio that warrants an immediate insurance review. Haxon recommends that all portfolio landlords take the following steps as a matter of priority:

Confirm that rent guarantee insurance is in place across all tenancies and that the policy limits and cover periods are appropriate for the extended possession timeline the Act now creates.

Check that legal expenses cover is included in your landlord insurance programme and that it specifically covers possession proceedings under the new Section 8 grounds, with limits sufficient for extended proceedings.

Review your property owners’ liability limits in light of the Act’s strengthened property standards requirements, particularly for older properties.

Consider whether your existing insurance programme, if spread across multiple policies and multiple insurers would benefit from consolidation into a coherent portfolio arrangement managed by a specialist broker.

Ensure that any new tenancy agreements entered into after 1 May 2026 are on the correct periodic basis and that all required documentation, including the Government’s Renters’ Rights Act Information Sheet, has been provided to tenants.

Frequently asked questions

Does rent guarantee insurance cover the new extended arrears period under Section 8?

Most modern rent guarantee policies are designed to cover rental income throughout the possession process, not just for a fixed initial period. However, the exact terms vary between policies. Haxon reviews the specific terms of any rent guarantee policy against your tenancy profile to ensure the cover period is appropriate given the extended timeline that possession proceedings can now involve.

Will my existing landlord insurance still be valid under the Renters’ Rights Act?

Your existing policy will remain valid, but it may not be adequate for the changed risk profile the Act creates. The key areas to review are whether rent guarantee cover is in place, whether legal expenses cover extends to Section 8 proceedings, and whether your property owners’ liability limits are appropriate for the strengthened maintenance standards the Act introduces.

Do I need rent guarantee insurance if my tenants have always paid on time?

A tenant’s payment history is not a reliable predictor of future default. Financial circumstances change — redundancy, relationship breakdown, ill health — and even tenants with excellent track records can fall into arrears. The risk of not having rent guarantee insurance in place is that a single tenant default, combined with extended possession proceedings under the new regime, could result in twelve months or more of absent income with limited recourse.

How has the Renters’ Rights Act affected rent guarantee insurance premiums?

The abolition of Section 21 has increased the risk profile of rent guarantee insurance, and premiums in this market are expected to rise as the implications of the Act work through the claims environment. Landlords who arrange rent guarantee cover now, before premium increases take full effect, are likely to secure more favourable terms than those who wait.

Haxon arranges landlord insurance, rent guarantee cover and legal expenses protection for portfolio landlords across Sussex. If you would like a review of your current arrangements in light of the Renters’ Rights Act, we would welcome the conversation.