Blog: Claims standards are tightening, but rebuild costs are the real stress test

Claims handling is under regulatory scrutiny again, but the economics of rebuilding may be shaping home insurance outcomes just as much. Matthew Ward, senior surveyor at RebuildCostASSESSMENT.com, explains why sums insured deserve renewed attention.

Home insurance claims are firmly back under the microscope due to Which?’s super-complaint and the Financial Conduct Authority’s (FCA) December response. The headlines are about claims handling standards, transparency and enforcement – and that focus is right. However, I think there is another significant story sitting beneath it all – inaccurate buildings reinstatement costs.

Which? submitted its super-complaint to the FCA in September 2025, arguing that consumers are being let down when they claim, particularly in home and travel insurance. 

The FCA replied on 18 December 2025, confirming it would expand its work on both markets. That includes deeper scrutiny of claims performance, customer service and delivery, and how firms oversee third parties involved in claims handling. It also signals that enforcement will follow where the regulator sees poor practice.

Claims are becoming more expensive to settle because the true cost of reinstatement has moved ahead of customer expectations and, in many cases, ahead of insured sums.

This didn’t come from nowhere. The FCA had already reviewed the claims handling arrangements of several home and travel insurers, identifying both good practice and clear weaknesses, including issues with operational oversight, complaint handling and the governance of outsourced claims operations. 

That matters because customers do not distinguish between an insurer, a delegated authority partner, or a claims administrator. They just want a fair outcome, quickly and transparently.

While complaint volumes have been broadly stable, the economics of those complaints is moving in the wrong direction. According to the FCA, more than 93,000 property insurance complaints were opened in the first half of 2025, only marginally higher than in 2021, yet firms set aside over £43.6m in provisions. 

Average provision per complaint has risen from just under £400 to almost £470. Even if volumes don’t spike, a rising cost per complaint tells you that disputes are becoming more complex, more drawn out, or more expensive to resolve.

We also cannot ignore claims acceptance rates. In 2024, acceptance stood at 63.2% for buildings insurance and 71.9% for combined buildings and contents. That’s materially below the 90% plus acceptance rates seen elsewhere in the market. 

Declined claims can be entirely legitimate, and the property line is inherently more complex, but these figures show why trust and expectation management are such live issues.

This is where sums insured come in.

It’s a little more complicated

Property insurance is not like motor. It relies on a wide range of variables that are difficult for consumers to estimate. Homes vary by size, construction type, condition, location, exposure to local risks and maintenance history. 

Even two similar looking houses can have very different rebuild costs. In a market like that, the buildings sum insured is not an admin field, it is one of the biggest consumer outcome controls in the entire transaction.

And right now, construction economics are doing much of the heavy lifting in shaping claims outcomes.

Since 2021, reinstatement costs have been pushed higher by structural pressures across the construction sector. Labour shortages have reduced workforce capacity to its lowest level in almost 25 years, putting upward pressure on labour rates, extending project durations and increasing programme risk. Materials inflation has eased from its peak, but remains significantly higher than pre-2021 levels, compounding rebuild costs over time. At the same time, national retrofit and energy-efficiency programmes are absorbing skilled labour and materials, diverting capacity away from reinstatement work and pushing prices higher.

Regulatory and compliance requirements have also increased. Reinstatement is no longer a simple like-for-like exercise, because modern building, fire safety and energy performance standards often exceed those of the original construction. 

In parallel, newer homes increasingly rely on specialist or proprietary systems, which require approved materials and accredited installers, increasing both cost and lead times. Rising preliminaries, plant costs and professional fees further add to the reinstatement bill. 

Finally, climate-related events such as flooding and severe weather are creating more complex and costly damage scenarios, requiring specialist remediation and staged reconstruction.

Put that together and one thing becomes clear: claims are becoming more expensive to settle because the true cost of reinstatement has moved ahead of customer expectations and, in many cases, ahead of insured sums. This is why sums insured set a few years ago can be wrong today, without anyone noticing, until a claim lands.

Estimation over evidence

From the data we see, this is not marginal. Our September 2025 property insurance infographic, based on 43,000+ comprehensive property assessments, shows that only 7% of properties are insured accurately; 70% are underinsured and 23% are overinsured. 

Underinsured properties are insured for 67% of true rebuild cost on average, while overinsured properties are typically insured for around 129%. That tells you something important: most policies are not failing because people are careless, they are failing because the system still encourages estimation over evidence.

Overinsurance matters as much as underinsurance, just in a different way. It may not create the same immediate shortfall at settlement, but it can mean customers paying inflated premiums for years without being any better protected. 

Both under and overinsurance are symptoms of the same problem: too much guesswork, and too few routine, construction-aware reviews.

So yes, the FCA’s expanded work on claims handling and transparency is welcome. But I think the industry should treat this moment as a wider call to action. Better claims processes are essential, but the easiest claims disputes to avoid are the ones created by inaccurate sums insured.

If insurers, brokers and distributors want fewer escalations, fewer complaint chains, and better Consumer Duty outcomes, rebuild cost assessments and regular reviews need to become routine and measurable. Because when the claim happens, the policy needs to perform, and it cannot do that if the core number it is built on is wrong.

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