If you work in the real estate or construction industries, then you’ve no doubt felt the effects of inflation in recent years. In this post we’ll discuss what’s driving inflation in the construction, and how this is in turn leading to a rise in underinsurance across all sectors.
If you have any questions about your real estate or business insurance needs, call us on 0208 290 9080, or email us at business@anthonyjones.com.
The Current State of Construction Inflation
In the fourth quarter of 2025, inflation figures showed UK construction prices rising 2.8% year-on-year. This was the highest rate recorded since January 2024.
According to the latest forecast from the Building Cost Information Service (BCIS), over the next five years:
- Building costs may increase by 15%.
- Tender prices may increase by 17%.
Causes of Inflation in the UK Construction Industry?
There are many underlying causes contributing to inflation in the UK construction industry:
- Global conflicts can contribute to higher energy costs, which will in turn lead to higher construction costs. Global instability can also affect the price of food, along with the cost of producing and importing raw materials, all of which will further contribute to rising costs.
- Government policies can have a short-term impact. For example, ministers recently announced plans to cut steel import quotas by 60% from July, while imposing a 50% tariff on any material imported above these limits. The long-term plan is to increase the demand for domestic steel. But in the short-term, these measures will likely raise costs for everyone.
- Staffing costs are also rising, partially as a result of higher minimum wages and National Insurance contributions, along with an ongoing shortage of skilled labour.
What is Underinsurance?
Underinsurance means a policyholder does not have enough insurance to cover the full extent of any losses they may experience. You can read our full guide to the risks of underinsurance.
How Construction Inflation Drives Underinsurance
There is a direct link between construction inflation and underinsurance. Construction inflation means that repairs or rebuilds following an incident will cost more, and take longer, to complete. As a result, a policyholder’s buildings insurance limit may not meet the total cost of repairs.
Also, longer lead times means that businesses are likely to be out of action for longer than expected, meaning that their business interruption insurance will not give them the full cover they need.
Is Underinsurance a Disaster Waiting To Happen?
According to a recent study on underinsurance in the UK, up to 77% of business premises are insured for less than the required value. This is the cumulative impact of multiple years of price rises.
You need to be able to rely on your insurance to help you totally recover from any major or minor setbacks. That’s what it’s there for! As a result, it’s vital that you do all you can to avoid underinsurance as a business owner:
- Take care when calculating your business interruption sum insured, and go for as long an indemnity period as possible.
- Get regular valuations for your buildings and contents, so that you know exactly how much insurance you need to cover them.
- Work with an insurance broker, who will help you understand your insurance requirements, and will help you ensure that you have all the cover you need in the face of rising costs across the board.
Joe Penny, Associate Director at Anthony Jones says:
“Inflation and underinsurance: Two major problems plaguing every business in every sector. When everything else feels uncertain, your insurance can bring you some much-needed stability and peace of mind.
“At Anthony Jones, we’ll take the time to get to know you, your business, and all the risks you’re currently facing. We’ll then work to find you an insurance package that truly meets your needs, with no gaps in your cover that could put you at risk of underinsurance.”
To find out how we can help you get the right level of business insurance, call us on 020 8290 9080 or email us at business@anthonyjones.com.
