Is your property underinsured?

Over the last 12 months Cardinus Risk Management has identified a worrying trend in how people own and insure their properties.

Having surveyed more than 30,000 commercial and residential properties last year, they have witnessed widespread underinsurance among UK properties, putting owners at significant financial risk.

This article explains the underinsurance trends identified by Cardinus, the impact of rising prices and potential solutions for property owners.


Underinsurance trends

Cardinus has found that a staggering 95 per cent of introductions from insurance partners related to properties lacking adequate coverage. Over 35 per cent of these cases were identified as being over 60 per cent underinsured, resulting in a cumulative underinsurance figure of £1.1 billion.

As if underinsurance weren’t challenging enough, inflation further complicates the landscape for property owners. The costs of essential components like building materials, labour and supply chains have seen a 25 per cent surge compared to the pre-Covid era.

Implications for property owners

Insurance usually covers expenses for clearing, rebuilding, and professional fees. The problem arises when the evaluation of reinstatement costs is outdated. Current market conditions increase the risk of insurance not being enough.

Insurers may use an average clause, deducting a percentage for underinsurance. For example, a £1m claim with 25 per cent underinsurance would only get a £750,000 payout, creating a £250,000 shortfall. Severe shortfalls, ranging from 35-50 per cent, could lead to insurers denying claims for misrepresentation.

Addressing the challenge of underinsurance

Due to uncertain global economic conditions, property owners should regularly assess their property values. It’s advisable to conduct a Reinstatement Cost Assessment (RCA) and yearly reviews accounting for inflation. Having a formal RCA every three years by RICS certified valuers is important. 

Seeking guidance from a trustworthy broker or insurer will ensure accurate assessments, as market value and reinstatement cost value may vary, especially for older or listed properties.

Assessing the value of your property

Consider additional factors when assessing property values. Take into account the cost of replacing unique technology or features, such as new green heating and eco-electricity systems, as they can impact property values. Additionally, be aware of changes in building regulations, especially those related to energy efficiency, as they can also affect property values. Failure to comply with updated standards might necessitate rebuilding to meet the new regulations.

Real world example of underinsurance

An industrial property owner in the Northwest conducted an RCA during the property acquisition process. However, when a fire happened five years later, despite regular increases linked to inflation, the insurance coverage was 35 per cent lower than the current rebuild cost. The building had undergone upgrades and renovations during those years, but none of the new improvements were taken into account.

Protect your property with Cardinus

Ensuring your property is accurately assessed for reinstatement costs is crucial to avoid issues in case of a loss. Cardinus provide a RICS-regulated RCA service, which helps property owners, managers, insurers, MGAs and brokers to navigate the challenge of underinsurance.


Steve Johnson, Deputy Managing Director, Property and Insurance, Cardinus Risk Management

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