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When a property suffers a huge loss, for example from a fire or flood, the success and speed of recovery can hinge on the accuracy of the building’s estimated reinstatement cost as declared to insurers. Regular assessments are important, but between professional valuations, usually occurring every three years, many things can impact the cost of reinstating your assets like-for-like. Inflation is one of these material factors. 

In the current economic climate, geopolitical tensions, volatile markets, shifting trade tariffs, and new environmental regulations have created a highly complex landscape for insurance valuations. These aspects have driven general inflation for commodities across the globe, making many businesses assume that they can just adjust their building’s insurance policy to match this (consumer) inflation rate. 

However, this is a common misunderstanding, and can lead to dangerous insurance gaps, which could be catastrophic in the face of a significant loss. 

To ensure your business remains fully protected in the face of cost changes, it’s essential to understand what is driving the inflation of rebuild and reinstatement costs, and how it differs from general inflation figures. In this article, we will unpack these drivers of construction inflation and discuss how you can accurately estimate reinstatement costs to avoid underinsurance. 

Consumer inflation vs construction inflation 

People often see inflation rates discussed in headlines and assume this applies to everything that can be purchased, from the cost of milk, bread, and household energy bills, to rebuilding a commercial property when there is a total loss. However, this is not the case. 

Financial headlines reporting on inflation surges most often refers exclusively to consumer-facing metrics and have no bearing on business properties. General economic trends rarely reflect the complex realities of the construction sector. 

The Consumer Prices Index (CPI) is typically what the headlines are referring to. This index tracks the changing cost of the everyday goods a typical household may purchase. 

While the CPI gives a helpful snapshot of the state of the economy and how much general prices are increasing, it does not correlate with what it costs to reinstate a commercial building after a loss. Rebuilding a factory, warehouse, or office building depends on heavy structural materials, specialist labour, plant machinery hire, and commercial site clearance rather than consumer retail trends. 

When consumer inflation reduces, for example when energy costs come down, the cost of structural materials or specialised installation services may still be at a high cost due to supply chain pressures that are separate from the retail economy. 

Using the correct index 

When it comes to professional valuation consultants carrying out Reinstatement Cost Assessments (RCAs), they do not rely on standard economic inflation figures, because they are often not relevant statistics for an accurate reinstatement value. One source of more relevant data is the Building Cost Information Service (BCIS) which provides specific cost indices for construction costs. 

The BCIS tracks data across the UK construction sector and provides data determined from: 

  • Material price indices
  • Fluctuations in specialised trade wages and heavy machinery rental 
  • The actual prices contractors are bidding to undertake building work in current market conditions 

For example, the BCIS reported findings that the cost of construction materials increased by 5.9% in the 12 months to July 2026, compared to a UK CPI figure of 2.9% over the same period. 

However, any index needs consideration in the context of a company’s specific assets and situation. For example, the underlying data in a BCIS index may be based on large scale national contract inflation which may not be applicable to a remote, listed or specialised facility.

By analysing information and indices from sources such as the BCIS, rather than the general CPI, valuation experts are able to ensure that a property’s declared value reflects what contractors would actually charge for labour and materials. This aims to protect businesses from dangerous insurance gaps. 

This valuable data informs insurance valuations and ensures that they are as accurate as they can be to keep businesses adequately protected. 

What factors are driving up construction and reinstatement costs?

To understand rebuild inflation, it’s important to look at the events that impact construction costs across the globe.

Global oil prices 

The construction sector is reliant on fossil fuels to keep heavy machinery running on-site. Geopolitical instability, such as the current ongoing conflicts across the Middle East, causes a ripple effect on the global market. This is felt on those building sites, for example with escalating diesel supply and prices, thus impacting reinstatement times and costs. 

When global oil prices spike, manufacturers have no choice but to try to pass these increased production costs on, ultimately increasing the final rebuild cost of the property, which the business must pay. 

With the general time between insurance valuations being three years, assessments taken out in 2023 will not reflect this recent spike in costs, leaving those businesses with dated values at risk of being significantly underinsured if their building needs to be reinstated. 

On the other hand, securing a valuation today and keeping it in place over the next few years, assuming oil prices go back to longer term levels again could cause issues – in the event of a loss, the business might find itself overinsured and having paid unnecessarily high premiums.

Material changes

Another factor that can impact overall construction costs is material prices being influenced by international trade rules. A clear example of this is steel. In 2026, 70% of steel used in the UK is imported, with the cost of fabricated structural steel seeing a 17.7% year-on-year increase.

The UK implemented a steel trade measure on UK’s steel trade measure from 1 July 2026 that cuts tariff-free import quotas by 51% to 60% and imposes a 50% duty on out-of-quota imports. This will have an effect on the steel supply chain. The sudden fluctuation in price may leave insurance valuations from even a year ago to be critically short of what is required to purchase the necessary steel framework for a rebuild. 

Similarly, with imported steel facing higher prices, some companies may choose to use cheaper steel alternatives in order to get the rebuild job done to budget. However, this lower price often coincides with lower quality steel that may need to be replaced in years to come, potentially causing higher expenditure for the business in the long run. 

Site clearance 

When calculating reinstatement value, business owners naturally focus on the cost of new materials and labour to rebuild. However, clearing the site of debris and making sure it’s safe for new construction is often underestimated or even overlooked in RCAs. 

Disposal costs have also increased with the UK Landfill Tax surges. From April 2025 to April 2026, the standard rated material has increased from £126.15 per tonne to £130.75 per tonne, and lower rated material increasing from £4.05 per tonne to £8.65 per tonne. Clearing potentially hundreds of tonnes of debris following a catastrophic fire or flood is significantly more expensive with today’s disposal costs in place. 

Finally, moving huge amounts of heavy waste requires specialised vehicles and machinery, which will face the impacts of the rising oil prices. 

How to ensure accurate insurance coverage in an uncertain world 

With rising costs and construction inflation surges fuelled by current global events, it’s crucial to ensure that your insurance coverage is up-to-date and accurate to avoid you having to pay extra. Underinsurance is a silent risk that can have catastrophic impacts. 

Here are some quick, practical steps you can take to ensure your organisation is not at risk. 

1. Commission regular independent reinstatement valuations

Independent RCAs, as provided by Charterfields, deliver objective, evidence-based figures that insurers recognise and can rely upon. These assessments analyse the most up-to-date BCIS data, global material shortages, and site-specific costs (such as the size of the waste removal process) in order to calculate an accurate rebuild cost. 

2. Review policies regularly

A “set and forget” approach leaves cover eroding over time. Best practice is a formal review at least every three years, but in high-inflation environments, annual reviews or even mid-policy checks may be necessary.

Key additional trigger points include completion of major capital projects, new acquisitions, or upgrades, which can significantly alter total reinstatement costs.

3. Understand indexation limits

Index-linked adjustments can create a false sense of security. If consumer inflation is at 3% while real-world costs for construction or machinery are rising at double digits, you could be quickly underinsured.

Ask your broker or insurer how indexation is applied and whether it reflects sector-specific inflation trends.

Conclusion

While inflation is always in the news for its fluctuations and impact on everyday lives, it’s so important to be aware that construction inflation, which impacts businesses and their insurance coverage, is linked to global events. Without keeping a close eye on it and adjusting your insurance policy accordingly, you may be at risk if your business is ever confronted with a catastrophic loss. 

Don’t leave your assets at risk of underinsurance. Contact the team at Charterfields today to arrange a comprehensive Reinstatement Cost Assessment and ensure your declared values are adequately protected in the face of uncertainty.