The cost of settling property insurance claims has risen since 2021, the Building Cost Information Service (BCIS) warned.
Financial Conduct Authority (FCA) data shows that the number of complaints about property insurance have held steady in recent years, with the amount in the first half of 2025 standing just 3% higher than in H1 2021.
However, provisions made by firms to settle complaints rose by 21% over the same period, lifting the average provision per complaint opened from just under £400 to almost £470.
Richard MacLean, executive director of BCIS, said: “The inflationary pressures facing the construction industry currently, including labour shortages, rising material costs and demand pressures from retrofit and energy-efficiency work, all increase the likelihood of properties drifting into underinsurance.
“As costs rise, diverge regionally and differ by construction type, sums insured set even a few years ago may no longer reflect the true reinstatement value of a home.
“Together, these pressures are reshaping the true cost of repairing or rebuilding damaged homes and, in turn, influencing the provisions insurers must make when disputes arise.”
More than 93,000 property insurance complaints were opened in the first half of 2025 across the UK, with firms setting aside more than £43.6 million to cover potential redress payments.
Buildings insurance had a 63.2% claims acceptance rate in 2024, up slightly from 63.0% in the previous year.
Combined buildings and contents policies had a higher rate at 71.9%, but both remain well below most other insurance products, where acceptance rates exceed 90%.
This disparity prompted Which? to file a super-complaint with the regulator, challenging what it sees as unfair claim definitions and practices across the home insurance market, with a response from the FCA due this month.
Two superficially similar properties can carry entirely different risk profiles and cost bases, as a result of construction form, condition, maintenance history and exposure to risks such as flooding or emergency response times.
This inherent complexity helps explain why acceptance rates for home insurance have historically been lower than for other categories and why rising construction costs amplify pressures on both claim outcomes and insurer provisioning.
MacLean added: “Claims are becoming more expensive to settle because the true cost of reinstatement has moved ahead of what many policyholders understand or have insured for. This widening gap is likely to leave more properties underinsured unless rebuild values are kept up to date using robust, construction-specific cost data.
“For insurers, the rising provisions seen in the FCA’s figures represent the downstream effect of structural shifts in construction. As many in the construction industry are realising too, this is our ‘new normal’, not a short-term anomaly, and insurers will need to adjust sums insured, pricing and claims decisions accordingly.”