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In an economic climate marked by uncertainty, inflation and supply chain disruption, businesses face a growing but often underestimated risk: underinsurance. The latest Charterfields Insurance Gap Report 2025 presents alarming evidence that most UK commercial properties and assets are significantly underinsured. With 88% of surveyed sites underinsured on building cover, and 77% on plant, equipment and contents, the financial exposure for businesses is severe – and growing.

For any organisation reliant on physical assets – whether buildings, machinery or equipment – having accurate insurance valuations is no longer optional. It’s a critical component of risk management.

The underinsurance crisis: A snapshot

As a leading firm specialising in reinstatement cost assessments, our team has compiled data from over 600 site inspections across the UK as part of our annual Underinsurance Report. Key findings in the analysis show:

  • 88% of properties surveyed were underinsured on buildings and civil works.
  • 35% had declared building values at less than half of the true reinstatement cost.
  • 77% of plant, equipment, and contents were underinsured.
  • 41% had declared values for these assets at under 50% of what it would cost to reinstate them.

These figures represent a wide range of sectors, including manufacturing, food production, logistics and services. Despite repeated calls by insurers and brokers to review declared values, gaps persist. This is often due to outdated valuation methods, lack of clarity on insurance responsibilities or technological change.

Why this matters more than ever

Underinsurance isn’t just a technical issue. It can have catastrophic financial consequences.

In the event of a claim, insurers typically apply the “average clause”, which reduces payouts proportionally to the level of underinsurance. For instance, if a business declares a building value at £1 million but the true reinstatement cost is £2 million, the insurer may only pay 50% of any claim.

In today’s environment, this poses a real threat. Construction inflation, supply chain volatility, tariffs and labour shortages have driven rebuild and replacement costs dramatically higher. According to the UK’s Office for National Statistics, materials prices increased by nearly 30% between 2021 and 2023. Even if a business last reviewed its insurance three years ago, its cover could now be dangerously outdated.

The hidden pitfalls of inadequate valuation

Several factors contribute to chronic underinsurance:

    1. Online estimation tools
      While convenient, these tools often rely on outdated or generic data. They often fail to capture site-specific nuances, specialist plant, or regional cost differentials. Here’s why computer models may not provide all the answers for insurance valuations.
    2. Lease and rental confusion
      Many businesses overlook obligations around leased property or equipment. Assets thought to be the landlord’s responsibility may not be covered unless explicitly included in the policy and vice versa.
    3. Inclusion/exclusion errors
      Without expert guidance, it’s easy to incorrectly categorise assets or misunderstand policy terms. This can lead to overlaps in cover or worse, gaps.
    4. Changing business models
      In sectors such as food processing, IT or vehicle manufacturing, technological change can impact replacement costs for assets. 
    5. Movement of assets
      Equipment relocations or upgrades may not be reflected in the insurance schedule unless regularly updated. This is particularly common in sectors such as food manufacturing.

Sectors most at risk of underinsurance

Our data indicates that the insurance gap varies widely across sectors. For example, older industrial properties, facilities in high-demand urban areas, and sites with complex production equipment tend to show the largest shortfalls. These environments often require bespoke rebuild solutions, specialist contractors, or phased reinstatement. These factors can significantly raise true reinstatement costs.

According to aggregate data collected over the last 7 years where existing declared values were known, the sectors identified as having the largest average insurance gap in the UK include:

  • Hospitals, care homes & clinics
  • Food & food products
  • Industrial & logistics
  • Hotels & resorts
  • Education

How to mitigate the risk of underinsurance with professional valuation

The case for insurance valuations is clear: businesses need accurate, independently verified reinstatement values. Professional assessments, such as those offered by Charterfields, consider:

  • Up-to-date construction and material costs.
  • Site-specific complexities.
  • Compliance with planning laws and building regulations.
  • Identification and inclusion of all insurable assets.

These valuations don’t just protect businesses from underinsurance, they can also guard against over insurance, which could mean excessive premiums without added benefit.

The role of brokers and risk managers

Insurance brokers and corporate risk managers have a crucial role to play. By recommending regular insurance valuations, and certainly at least every three years or following major site changes, they help clients ensure appropriate cover and streamline the claims process.

Regulatory bodies and insurers are also turning up the pressure. The Financial Conduct Authority (FCA) has made it clear that businesses are expected to take “reasonable care” in setting declared values. Failure to do so could jeopardise full recovery after an insured claim and lead to financial loss and reputational damage.

What’s next?

With economic conditions continuing to shift, the time to act is now. A professional insurance valuation is a modest investment compared to the cost of a denied or reduced claim.

To avoid the financial shock of underinsurance, Charterfields recommends the following steps:

  1. Schedule a professional valuation
    Use accredited valuation experts who conduct on-site assessments and understand your sector’s nuances.
  2. Review regularly
    Update valuations at least every three years or sooner after major changes in operations, acquisitions or refurbishments.
  3. Understand policy terms
    Work with brokers to clarify responsibilities for leased properties and demarcate between contents and structures.
  4. Educate stakeholders
    Ensure finance, facilities, and insurance teams align on declared values and reporting processes.

Conclusion

Underinsurance is a silent risk, but one with loud consequences. As the 2025 Charterfields Insurance Gap Report makes clear, most UK businesses are operating with a false sense of security. With businesses facing mounting costs and growing uncertainty, accurate insurance valuations are not just good practice; they are essential for survival.

Don’t wait until disaster strikes. Take control of your risk profile with a professional valuation today.

For a copy of Charterfields’ 2025 report, or to discuss your reinstatement cost assessment requirements, contact our team directly at enquiries@charterfields.com. We will also be attending BIBA 2025 in Manchester, or come visit our stand at Airmic 2025 in Liverpool.