The Rising Risk of Fire and Underinsurance in UK Property: A Growing Concern for Owners and Insurers

The UK property market is facing a quiet but escalating threat: the combination of increasing fire risk and widespread underinsurance.

While much of the national conversation focuses on inflation, interest rates, and housing supply, a critical risk issue is developing beneath the surface — one that could have severe financial consequences for property owners, landlords and businesses alike.

Fire Risk in the UK: Why the Exposure Is Growing

Fire has always been a core property risk. However, several emerging factors are increasing both the likelihood and severity of losses:

1. Ageing Building Stock

A significant proportion of UK properties were built before modern fire safety standards. Older wiring, ageing insulation materials and historic construction methods can significantly elevate fire risk — particularly where maintenance has been deferred due to cost pressures.

2. Changing Occupancy Patterns

Remote working, mixed-use properties and residential conversions have altered how buildings are used. Properties not originally designed for modern electrical loads or commercial activities are now under greater strain.

3. Lithium-Ion Batteries and EV Charging

The rapid adoption of electric vehicles, e-bikes and battery storage systems introduces new ignition risks. Lithium-ion battery fires burn hotter, spread faster and are more difficult to extinguish than traditional fires.

4. Construction Inflation

Rebuild costs have risen sharply in recent years due to supply chain disruption, labour shortages and material cost inflation. Even where fire frequency remains stable, the financial impact of each loss has increased significantly.

The Underinsurance Problem

Alongside rising fire exposure sits an even more concerning issue: underinsurance.

A large proportion of UK properties — both residential and commercial — are insured for less than their true reinstatement value. This gap has widened in recent years as rebuild costs have accelerated.

Why Is Underinsurance Increasing?

• Rapid rebuild cost inflation outpacing policy reviews
• Index linking failing to reflect real-world construction costs
• Incorrect original valuations
• Extensions or refurbishments not declared
• Confusion between market value and rebuild cost

Many property owners assume their sum insured should reflect the purchase price or market value. In reality, insurance should be based on the full reinstatement cost — including demolition, debris removal, professional fees and rebuilding.

These figures can differ significantly.

The Hidden Impact of “Average”

Underinsurance doesn’t simply result in a shortfall in a total loss scenario.

Most commercial property policies are subject to a “condition of average.”

This means that if a building is insured for less than its true reinstatement value at the time of loss, any claim payment may be reduced proportionately — even for partial losses.

For example, if a property is insured for 70% of its correct rebuild value, the insurer may only pay 70% of the loss amount.

This proportional reduction can apply to claims of any size — not just catastrophic fires.

In a severe loss scenario, this can leave businesses unable to fully reinstate premises, causing prolonged interruption, reputational damage and in some cases, insolvency.

For landlords, it may disrupt rental income streams. For homeowners, it can create significant personal financial exposure.

A Perfect Storm

We are effectively seeing a convergence of three trends:

1. Increasing fire severity and complexity
2. Escalating rebuild costs
3. Widespread underinsurance

Together, these create a systemic vulnerability across the property market.

What Property Owners Should Be Doing Now

1. Commission Professional Rebuild Valuations
Historic estimates or purchase prices are no longer reliable indicators.

2. Review Sums Insured Annually
Index linking should be reviewed, not assumed to be sufficient.

3. Strengthen Fire Risk Management
Fire risk assessments, electrical inspections (EICRs) and lithium-ion battery controls are becoming increasingly important.

4. Review Business Interruption Cover
Indemnity periods should reflect realistic rebuild timelines — which are often longer than expected in today’s market.

How Integrum Insurance Solutions Can Help

In a market where risk exposure and rebuild costs are shifting rapidly, proactive insurance reviews are essential.

At Integrum Insurance Solutions, we provide confidential, no-obligation cover reviews to help property owners, landlords and businesses:

• Assess rebuild adequacy
• Identify potential underinsurance gaps
• Review policy wordings and average provisions
• Evaluate business interruption limits and indemnity periods
• Strengthen overall risk resilience

Our approach is consultative and transparent — ensuring you understand exactly what your policy would do in the event of a serious loss.

The objective is simple: to ensure that if the worst were to happen, your insurance programme responds as intended — and your financial position is properly protected.

Final Thoughts

Fire risk in the UK is not new — but the scale of financial exposure created by underinsurance is growing.

The question is no longer whether properties are insured — but whether they are insured correctly.

A short review today could prevent a significant financial shock tomorrow.

If you would like to discuss your current arrangements, feel free to get in touch.