England and Wales drought could expose property underinsurance, BCIS warns

Drought in England and Wales, following what is expected to be the driest July on record, could unearth cases of property underinsurance if claims for weather-related building damage become more frequent.

Cos Kamasho, principal consultant at BCIS, said the interaction between rising repair and reinstatement costs, gaps in information at policy inception and renewal, and an increased likelihood of climate change-related claims could leave some policyholders discovering that their sums insured are insufficient when they make a claim.

While weather-related building damage does not itself cause underinsurance, he said a rise in related claims could reveal more cases where the sum insured is insufficient to cover the full cost of repair or reinstatement.

‘Climate breakdown in the UK is increasing the frequency and intensity of environmental hazards, exposing our built environment to risks that were once relatively uncommon. Recurrent drought and resulting soil shrinkage and subsidence are one example, alongside more frequent and severe river and coastal flooding,’ he added.

‘Insurers and policyholders face a challenging situation. Construction cost inflation has been driven by a combination of factors in recent years, including geopolitical instability, higher materials costs and regulatory changes. These pressures mean the cost of reinstating a damaged property can increase significantly, even over a relatively short period.

‘If those changing costs are not reflected when a policy is taken out or renewed, buildings may be underinsured. That creates a significant financial risk when a major loss occurs.

‘Now more than ever, access to robust, high-integrity rebuilding cost data is vital. It gives insurers greater confidence in renewal pricing and helps ensure policyholders have sums insured that realistically reflect the true cost of rebuilding, leaving them better protected should the worst happen.’

Underinsurance is a prevalent problem in buildings insurance and can have several causes. These include confusion between market value and rebuilding cost, reliance on outdated assessments and incomplete property data.

The ABI/BCIS House Rebuilding Cost Index shows that domestic rebuilding costs continue to increase, rising by 5.9% in the year to the first quarter of 2026.

Recent figures from the Association of British Insurers (ABI)⁽¹⁾ also illustrate the rising cost of average claims.

In 2Q2026, the average subsidence claim reached a record £20,000, while the average claim for damage to homes and possessions caused by flooding, storms and burst pipes rose to £8,548, an increase of 12% on the second quarter of 2025.

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^{(1) – The ABI – Average claim for subsidence reaches record £20,000 amidst hot weather – here}