Home Rebuild Cost and the growing problem of under-insurance
Skyline Surveyors recently introduced a unique new "instant response" pay-per-click BCIS Home Rebuild Cost calculator.
What’s the background to this launch and why is it so relevant?
Previously you might well have said that it wasn’t particularly important. But that was the past and lots has changed in recent years.
Most consumers probably think that they should insure their home for its market value, or somewhere close. Or they think that their insurer will just make sure it’s covered for enough to meet the cost of any claims.
But how many actually stop to think of the consequences of rebuild cost before they click the “BUY” button on their policy?
What’s the issue?
Well, over the past 5 years, it’s increasingly become the case that the cost of repairing or rebuilding a home can actually be much greater than the market value, or the amount for which it is insured.
And that can leave home owners at risk of being underinsured.
The reasons behind underinsurance
To understand what’s going on, firstly we need to understand what a rebuild cost actually is.
Imagine your home was destroyed, or severely damaged, by some significant event. That might be a fire, flood, subsidence, explosion, land instability, tornado (yes, even in the UK we regularly see significant damage caused to homes by extreme wind events), and this is only likely to become more common with the effects of climate change.
Rebuilding your home incurs a number of cost elements including:
- Making safe in the immediate aftermath
- Demolition and site clearance of structures and substructures
- Land cleanup of contaminants
- Professional fees including surveyors, architects, designers, project managers etc
- Rebuilding to the original design
- Meeting current design standards and regulations
- VAT if applicable
If we start to delve a bit more deeply into how these costs affect the amounts for which we should be insuring our home then it begins to put a different perspective on things.
Materials
In 2022/23 alone we saw material costs increase by more than 25%. In fact it is estimated by BCIS that material costs grew by around 45% in the period 2020-2025. And the cost of specific building elements such as aluminium windows and doors, claddings, copper pipes and accessories, and scaffolding have gone up by more than 10% in 2025 alone with even bigger increases expected in 2026 due to the impact of global events.
Labour
Factors such as the pandemic, Ukraine war, Middle East instability, and a generally volatile economic climate have all conspired to push labour rates significantly upwards. So much so that the increase in labour costs in 2024/5 were greater than the 25% surge in material costs.
Since 2005 the workforce has lost 300,000, getting on towards a quarter, of its community with the greatest losses being in the self-employed sector. This has resulted in a decrease in the flexibility that contractors have in responding to peaks and troughs in demand. And all that conspires to push labour rates ever higher.
Other factors
The median build period for the 26 million homes in England and Wales is 1955-1964 (so around 65-70 years old) with some authorities counting up to 65% of homes being of pre-1919 build. On average around 21% of all homes predate 1919 and only circa 12% are post-1990.
That means that our aged housing stock is especially susceptible to damage caused by extreme weather events.
And, of course, extreme weather conditions are affecting all properties, not just older ones, resulting in more claims and higher claims on insurance policies. Many of these are partial-loss events, but with the same cost-push factors affecting all rebuilds.
Regulatory changes, and the need for better insulation and more costly facilities and standards all add fuel to the ever-growing fire of rising costs.
The Future Homes Standards will require greater reductions in carbon emissions from homes (and hence the impact on rebuilds, which have to meet standards relevant at the time of rebuild), resulting in the installation of more expensive systems and fabric, and increased levels of insulation.
Indexing
Many home insurance policies are index linked to ensure that cover remains adequate when a policy is renewed.
However, indexing only works if:
- The correct value was chosen at inception of the policy
- Indexing accurately reflects the real increase in costs.
And the simple fact is that many homeowners, when they take out a policy, only look at the premium and don’t consider whether or not the insured value is truly adequate.
This is often compounded by insurance companies relying on incomplete or outdated data on which to base their index computations.
Outdated property information
Many home owners improve their properties during their period of ownership. They build extensions, conservatories, loft conversions, upgrade their heating, add PV panels and/or upgrade the quality of fittings.
How many of those owners actually stop to think about informing their insurance company of those improvements? The answer is not many. And they leave themselves, again, potentially underinsured.
Premiums and policies
Only 25% of respondents to a survey about home insurance admitted they had read their policy carefully, while 39% only looked through it briefly and 31% only looked at the key points. So more than 70% of homeowners don’t really know what they are insured for or how to determine if they have adequate cover.
What seems to be of more importance to many consumers is the premium cost over quality and adequacy of cover.
The industry has seen a steady growth in building insurance complaints to the Financial Ombudsman Sector increasing by around 50% from 2021 to 2025, much of this growth being associated with underinsurance.
What do we need to do?
So what are we to conclude from this scenario.
We can see that many homeowners start with a figure that is often plucked out of thin air, and rely on their insurer to apply an indexing each year when they come to renewal. What they don’t know, of course, was whether the figure they started with had any basis in reality.
And even if an initial rebuild assessment was somewhere near correct, the huge changes we are seeing in material and labour costs and professional fees are almost certainly greater than the indexing applied…….and that’s partly because if the insurer added a truly reflective indexing then the premiums would rise to the point that their customer would immediately look elsewhere.
So we know that many home owners are likely to be under insured. But this is a foreseeable and avoidable risk.
How can we help?
The Skyline Home Rebuild Cost calculator is a fast, simple and low cost (£5 +VAT per calculation) tool that enables us to give our client a good indication of their real rebuild cost in 1-minute with just 10 data points.
As an add-on to a pre-purchase survey, at between £25 and £50 it delivers a high-margin return that involves no additional data beyond the scope of as traditional survey inspection.
Most of our clients are unlikely to properly appreciate the implications of rebuild cost as it’s never really been important before. But in the current climate of escalating costs it has become a vital element in ensuring that they don’t suffer the consequences of under-insurance.