Commercial property owners are facing a growing exposure to underinsurance, as a combination of higher construction costs, regulatory change and more complex reinstatement requirements begin to outpace insured values.
According to RebuildCostASSESSMENT.com, even well-managed portfolios may be vulnerable where sums insured have not been reviewed in line with current rebuild costs. The issue is particularly acute in commercial real estate, where reinstatement is often more complex than in the residential sector.
Gautham Rajendar, technical lead for commercial properties at RebuildCostASSESSMENT.com, says: “Commercial reinstatement is inherently more complicated than domestic rebuilding,”
“Multiple occupancies, bespoke fit-outs and compliance standards all add to the rebuild cost, and those factors are often underestimated.”
Recent data from the Department for Business & Trade shows construction material prices were around 2% higher in January 2026 than a year earlier, with more pronounced increases across new housing materials and repair and maintenance categories.
This sustained upward pressure is feeding directly into rebuild costs, particularly for assets such as warehouses, manufacturing facilities and retail premises, where reinstatement often involves complex electrical, mechanical and safety systems.
REGULATION ADDS TO COST PRESSURES
Alongside cost inflation, regulatory change is adding further complexity. The Building Safety Act, combined with evolving fire safety and energy efficiency requirements, is increasing the cost base associated with rebuilding commercial property following a loss.
Where sums insured are based on outdated valuations or simplified assumptions, property owners may face a shortfall at the point of claim, potentially exposing them to significant financial risk.
There are also compliance considerations. The Financial Conduct Authority’s Consumer Duty places an obligation on firms to deliver fair outcomes, which in turn is driving greater scrutiny of how insured values are determined and evidenced.
Rajendar says: “Some insurers are placing greater emphasis on the evidence behind declared sums insured,”
“They want to see that the figure has a clear factual foundation, rather than being based on a round number or a simple indexation uplift.”
Professional rebuild cost assessments are increasingly being used to support more accurate valuations, providing up-to-date data that reflects both cost inflation and regulatory requirements.
For property owners and asset managers, the direction of travel is clear. Regular reviews of insured values are becoming essential, with a full rebuild cost assessment recommended every three years, or sooner where material changes have been made to a property.
As rebuilding standards continue to evolve, maintaining accurate and evidence-based sums insured is likely to become a more critical component of risk management across the commercial property sector.
