Underinsurance may occur when your insurance doesn’t offer a suitable level of protection, potentially exposing you to a financial shortfall if you make a claim.

While brokers may confirm the rebuild cost of a building before renewing a policy, it is up to the policyholder to make sure the value they provide is accurate. If it isn’t, then the amount of money that may be paid out in the event of a claim might not cover the cost of rebuilding.

By letting your insurance policy automatically renew every year without considering a changing economic landscape or your own circumstances, you may not be suitably covered. For this reason, it can be important to regularly review your property insurance policy.

What does it mean to be underinsured?

If you’re renewing your block of flats insurance policy every year without taking inflation or changes to the property into account, your property risks being insured for less than the rebuild cost. This means that if the worst were to happen, and you had to completely rebuild your property, the amount you receive from an insurance claim might not be enough to pay for it.

What happens if you are underinsured and how might you avoid it?

In the event of a claim on a property that is underinsured, the average clause in a policy wording allows insurers to pay a lower amount. If you have insured your building for an insufficient amount, an insurer may reduce the settlement by the same percentage as the building is underinsured by.

If your block’s actual rebuild value is £1,000,000 but you’re underinsured by 20% and you suffer a total loss due to an insured event, would you be able to fund the £200,000 needed to make it habitable again?

It can help to have an independently assessed and up-to-date buildings declared value (BDV). The BDV is the rebuild cost of the property. This includes the bricks and mortar and everything that’s fixed to the property, including fitted kitchens and bathrooms.

It can be worth asking a surveyor perform a rebuilding cost valuation to confirm the current BDV when renewing a policy if you have reason to believe the rebuild costs could have increased.

Is inflation protection provided with blocks of flats insurance?

With a range of blocks of flats insurance policies available, you may want to consider how much cover you need and look at policies that can help mitigate the risks of underinsurance.

Index linking, for example, can be a valuable tool for landlords, as it aims to prevent a property from being underinsured by increasing the buildings declared value each time you renew. It factors in changes to costs associated with rebuilding a property, such as labour and building materials. To help with the worry of inflation and the headache of calculating the increasing rebuild cost of your property, a landlord insurance policy that is inflation protected can be key.

With our Blocks of Flats Insurance, the buildings declared value on the property will be adjusted monthly in line with the Household Rebuilding Cost Index prepared by the Association of British Insurers, with no additional premium required for the duration of the policy. On renewal, the premium will be based on the adjusted buildings declared value using the latest index figures.

An index-linked insurance policy can mean the rebuild value of your property is updated when you renew. However, it can still be important to regularly get a rebuilding cost valuation done, so that you have an accurate rebuild cost.

Blocks of Flats Insurance from Gallagher

We understand that cover and price are important to you, and we will search our panel of well-known insurers to help find you suitable protection. Connect with a specialist or call us on 0800 612 8631.


The sole purpose of this article is to provide guidance on the issues covered. This article is not intended to give legal advice, and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. We make no claims as to the completeness or accuracy of the information contained herein or in the links which were live at the date of publication. You should not act upon (or should refrain from acting upon) information in this publication without first seeking specific legal and/or specialist advice. Arthur J. Gallagher Insurance Brokers Limited accepts no liability for any inaccuracy, omission or mistake in this publication, nor will we be responsible for any loss which may be suffered as a result of any person relying on the information contained herein./p>