UK businesses and homeowners risk major insurance shortfalls as the Gulf crisis threatens higher rebuild costs 

UK construction inflation has already risen by 28% over the last five years

• Iran war, soaring energy prices, and labour shortages could push up construction costs 10-30% in the next three months alone

• Businesses, homeowners, and landlords risk insurance policies no longer covering full rebuild costs

Renewed inflation in the price of construction materials, caused by the Gulf crisis, threatens to leave UK businesses and homeowners at risk of being underinsured in the event of a fire or other major property damage, warns Karis Insurance, a leading real estate finance and insurance specialist. 

Karis Insurance explains that construction costs have already increased by 28% in the last five years, meaning that the amount of cover in many property insurance contracts is already lagging behind the current costs of rebuilding the property if it were destroyed in an incident. 

Karis Insurance says many property owners have attempted to limit rising insurance premiums by not increasing the amount insured on their buildings in line with higher rebuilding costs. However, this can leave them seriously exposed in the event of a claim, potentially leaving them hundreds of thousands of pounds out of pocket. 

Ravi Sejpal, Director of Insurance at Karis Insurance, says: “The risk of underinsurance has already grown – another surge in costs caused by the increase in oil & gas prices is going to make the problem worse. It seems clear that oil prices are not going to return to pre-crisis levels anytime soon.” 

“Many property owners are understandably looking for ways to control rising costs. However, failing to keep insurance cover in line with surging rebuild costs is an increasingly risky way of trying to save money.”  

The rise in construction costs has been driven by increases in the price of pre-cast concrete products (51%), insulating materials (51%), cement (29%), and pipes and fittings (46%) over the last five years. This is on top of higher energy prices and labour shortages affecting the building sector. 

As construction costs rise, insurance cover that was previously adequate may no longer fully reflect the true repair or rebuild cost of a property. As rebuild costs are 28% higher than five years ago, a property insured for £1 million could now be underinsured by £270,000. 

Ravi Sejpal adds: “If a fire or catastrophic event destroys your property, it is already a traumatic experience. Being underinsured and owing hundreds of thousands of pounds on top of losing your property would prove a devastating blow.” 

Construction costs could surge even more due to the Iran war

Ravi Sejpal warns that the gap between insurance cover and rebuild costs could widen significantly. Some UK contractors have been warned of 10-30% price increases over the next three months as the ongoing geopolitical tensions in the Middle East continue to place pressure on global energy prices and building material supply chains.  

Says Ravi: “Construction costs are only expected to rise faster with global supply chains under strain from the conflict in the Middle East. As such, if a property has not been professionally revalued recently, there is a real risk that the insurance cover no longer reflects the true rebuild cost.” 

“Underinsurance often only becomes apparent when a major claim is made, and by then it is too late. Reviewing insurance now will be a fraction of the cost of finding your property is underinsured once a fire or catastrophic event has occurred.”