Energy efficiency retrofits, rebuild costs, and underinsurance

UK insurance brokers face a dual challenge in 2025. On one hand, underinsurance of buildings remains alarmingly common. On the other, a nationwide drive for greater energy efficiency – driven by soaring energy costs, climate goals, and new laws – is altering building specifications and raising rebuild costs. Together, these trends mean many property owners’ insurance sums insured are no longer adequate. This report explores how “green” retrofits are impacting rebuild valuations and premiums, and how brokers can help clients avoid the underinsurance trap.

Underinsurance in the UK: a widespread problem

Underinsurance rates by UK region (2024 data). Most buildings are not insured for their full rebuild cost.

Despite recent improvements, the majority of UK properties remain underinsured. According to the latest data from RebuildCostASSESSMENT.com, 76% of UK buildings are underinsured (with only 4% insured for the correct amount). This underinsurance epidemic spans all regions. The table below summarises underinsurance rates by region and by property type:

 In practical terms, this means roughly 7 to 8 out of every 10 buildings on a typical street are underinsured. On average, underinsured buildings are covered for just about 60–65% of the amount they should be. In a serious loss, the claim payout on such a property would fall far short of the true rebuild cost – a consequence of the dreaded “Average Clause” whereby insurers reduce claim payments in proportion to underinsurance.

The energy efficiency push: impact on rebuild costs

Energy costs in the UK have surged in recent years, and there’s intense pressure to make buildings more energy-efficient. The government’s net-zero targets and climate legislation are accelerating this push. For instance, Scotland’s proposed Heat in Buildings Bill will require extensive upgrades to heating and insulation in the coming decade. The plans include deadlines for improvements: private landlords must ensure their properties meet a minimum energy efficiency standard by 2028, and owner-occupiers by 2033. The use of “polluting heating systems” (like traditional gas or oil boilers) will be phased out – anyone purchasing a home or business may be legally required to replace old boilers with low-carbon heating within a set period after sale. And by 2045, no building in Scotland will be allowed to use fossil-fuel heating. These ambitious measures signal a major wave of retrofits and upgrades: from installing heat pumps and solar panels to fitting better insulation, windows, and ventilation systems.

Outside of Scotland, the direction is also clear. Similar efficiency standards are being encouraged across the UK (England and Wales have raised minimum EPC requirements for rentals, for example). Homeowners and commercial property owners are investing in upgrades to save on energy bills and comply with evolving regulations. While these improvements are beneficial – lower energy bills, smaller carbon footprint, improved comfort – they come with significant costs. A deep retrofitting of a home can easily run into tens of thousands of pounds. One recent study found that bringing an average British home up to a high energy-efficiency standard (a “deep retrofit”) costs around £69,000 per property on average, more than double the government’s earlier estimate of £30,000. The works in such retrofits often include external wall insulation, new efficient windows, upgraded heating (e.g. air-source heat pumps), added ventilation, and more.

For brokers and insurers, the crucial point is that these upgrades can substantially increase a building’s rebuild cost, often in ways clients might not anticipate. Construction costs have already been climbing due to material and labour inflation, but now the drive for greener buildings is adding another layer of cost. An insurer commentary in 2022 noted that rebuild costs have risen not only because of general inflation but also due to the latest energy efficiency requirements for new homes. In fact, it’s becoming “not uncommon for the cost of a rebuild to be higher than a home’s market value, due to the need to meet modern ‘nearly zero’ energy standards”. In other words, if an older building burns down, rebuilding it today means incorporating high-efficiency insulation, heating, etc., to comply with current standards – and this can make the rebuild considerably more expensive than the original structure.

How green retrofits increase rebuild costs

Why do energy-efficient renovations drive up the cost of rebuilding a property? Several factors are at play:

• High-performance insulation: Upgrading insulation (in walls, roofs, floors) often uses advanced materials – for example, external wall insulation systems, spray foam, or thick layered insulation – that are more expensive than what older buildings contain. These materials improve thermal performance but would significantly increase replacement costs. If a building with newly installed external insulation had to be rebuilt, the insurer must cover reinstalling that high-spec insulation, not the thin walls of decades past. Higher insulation standards also mean more material volume and labour time, raising rebuild estimates.

  
  

• Efficient glazing & airtightness: Energy retrofits commonly include double or triple-glazed windows, insulated doors, and sealing up drafts (airtightness works). Top-tier windows and doors can cost hundreds of pounds more per unit than standard ones, so replacing them like-for-like after a loss is more expensive. Achieving airtightness often requires meticulous installation of membranes, tapes, and seals by skilled contractors. Moreover, a tightly sealed building typically needs a mechanical ventilation system to ensure fresh air (often a unit with heat recovery). All these components add complexity and expense to any reconstruction.

  

• Heat pumps and low-carbon systems: Replacing a gas boiler with an electric heat pump (air-source or ground-source) is a common retrofit to cut emissions. Heat pumps are significantly more expensive to install than a standard boiler, often requiring new piping, larger radiators or underfloor heating, and upgraded electrical capacity. They also involve specialised labour – certified heat pump installers, electricians, whose work commands a premium. If a building with a £10,000 heat pump system burns down, the insurance will need to cover that system’s reinstall (as opposed to perhaps £2,000–£3,000 for a basic boiler). Similarly, solar panels or battery storage installed for efficiency would need to be replaced after a total loss, adding to rebuild costs.

  
  

• “Breathable” materials & moisture control: Older properties, especially traditional brick or stone buildings, often require vapour-permeable (“breathable”) construction methods when retrofitted. For instance, adding internal insulation or lime plaster allows walls to manage moisture and prevent damp in buildings that “don’t breathe” through modern cavity walls. Using specialist natural materials like lime render, wood-fibre insulation, or clay paints can preserve breathability, but these materials usually cost more than standard cement or drywall, and tradespeople with the right expertise may be scarce. This kind of retrofit complexity means higher rebuild costs. If the building were destroyed and rebuilt, those same costly breathable solutions should be used to avoid moisture problems. (In short, as building experts note, “buildings don't breathe” – walls don’t literally inhale air, but they do allow water vapour to diffuse, and maintaining that balance is critical.) Proper moisture management entails careful design with vapour-permeable materials, capillary breaks, and hygroscopic (moisture-buffering) finishes. These ensure the building remains dry and healthy, but they require precise techniques and materials, which drive up costs.)

  
  

All the above measures involve higher specification materials, more specialised labour, additional regulatory compliance, and greater design complexity. Modern energy-efficient construction is simply more expensive to replicate. By using precise strategies – from vapour barriers to advanced HVAC – we “design buildings that manage moisture effectively, ensuring durability and a healthy environment”. But that level of design and performance comes at a price. For brokers, the implication is clear: whenever a client upgrades their building’s fabric or systems for energy efficiency, the sum insured on their policy may need to increase to reflect the new higher rebuild cost. Failing to do so can push a previously adequately insured building into underinsurance. A client might proudly invest in a £50,000 retrofit to save energy, only to inadvertently create a dangerous insurance gap if they don’t update their coverage.

The heat in buildings bill: a timeline for retrofits

To appreciate the scale of change, consider Scotland’s upcoming Heat in Buildings Bill. This legislation (currently in consultation) effectively sets a timetable for upgrading the nation’s building stock:

• By 2028, all private rental properties in Scotland must meet a minimum energy efficiency standard (likely around EPC band C). Landlords will be legally obliged to retrofit insulation, improve heating systems, and otherwise boost energy performance in the next few years – or face penalties for non-compliance.

  
  

• By 2033, owner-occupied homes must also meet that minimum efficiency standard. This gives homeowners a longer runway, but it means within a decade the vast majority of homes will require some retrofitting – from loft insulation and double glazing upgrades to new heating sources – to hit the target.

  
  

• On sale of a property: The Bill proposes that when a home or commercial building is sold, the buyer will be required to end the use of any “polluting heating system” within a fixed period after purchase. In practice, this means if someone buys a house with an oil boiler or old gas furnace, they must install a compliant heating system (e.g. a heat pump or electric heating), perhaps within a few months or years of the sale. This rule will trigger many one-off retrofits tied to property transactions.

  
  

• By 2045, no building in Scotland can use a fossil-fuel heating system. This aligns with Scotland’s net-zero deadline and essentially mandates a complete transition to low-carbon heating (electric, heat networks, hydrogen or other solutions) for every building.

  
  

For insurance professionals, these deadlines highlight that a surge of retrofit activity is imminent. Thousands of properties will undergo material changes (insulation, heating, ventilation upgrades) in a relatively short period. Each of those changes can alter the rebuild value. A modest 19th-century flat in Glasgow that currently costs £150k to rebuild might cost substantially more after the owner installs high-end internal insulation and a heat pump to meet the 2033 standard. The same goes for a Victorian rental house that a landlord fully refurbishes by 2028 to comply – its risk profile and rebuild cost will have fundamentally changed post-renovation.

Notably, England and Wales have had similar efficiency targets under discussion (previously, an EPC “C” requirement for rentals by 2025/2028 was proposed, though recently delayed). And across the UK, building regulations are steadily tightening insulation and ventilation standards for any major renovations or new constructions. In short, the UK’s building stock in 2030 will be very different from that of 2020. Brokers should anticipate that many client properties will be updated, and those updates must be reflected in their insurance. Underinsurance could otherwise worsen. The next section outlines how brokers can respond.

How brokers can help clients avoid underinsurance

Insurance brokers are in a unique position to educate and protect clients through this period of change. Here are some key recommendations and action points for brokers to consider:

• Encourage rebuild cost assessments after retrofits: Any time a client undertakes a significant building upgrade – whether it’s installing a new heating system, adding an extension, or improving insulation – encourage them to update their rebuild cost assessment. Even a mid-size retrofit can shift the rebuild value upward. Regular reassessments (e.g. every 3–5 years or immediately after major works) ensure the sum insured keeps pace with the property’s current specifications. This proactive step prevents the client from inadvertently slipping into underinsurance after improving their property.

  
  

• Use professional valuation services: Estimating an accurate rebuild cost is a specialised task. Brokers should guide clients to reliable valuation services rather than rough guessing or outdated calculators. For example, RICS-regulated RebuildCostASSESSMENT.com’s Desktop Assessment service offers an affordable, remote rebuild valuation by expert surveyors (using online data and expert analysis). It’s a quick way to update sums insured after renovations. For more complex or unique buildings, a full on-site Rebuild Cost Assessment (a surveyor visit) can be arranged to account for all bespoke features. Leveraging these services gives both broker and client confidence that the insurance coverage is based on a professional, up-to-date valuation, greatly reducing underinsurance risk.

• Educate clients on market vs rebuild values: Brokers should continually remind clients that insurance is about rebuild cost, not market price. Many property owners mistakenly believe their home’s rising market value or purchase price is a suitable figure for insurance, which is often not true and can lead to underinsurance. Take time to explain the difference (as outlined earlier) and how upgrades can change rebuild costs independently of market value. Clients who understand this are more likely to agree to coverage increases when needed. Simple analogies (e.g. “We need to insure the house for what it would cost to physically rebuild it – which, after your eco-refurbishment, is higher than before, even if you haven’t added floor area.”) can drive the point home.

  
  

• Highlight the underinsurance consequences: It’s also important to communicate what’s at stake. Brokers can tactfully explain the consequence of not adjusting cover: the Average Clause penalty in claims. For instance, if a client doubled the insulation in their building but left the sum insured unchanged, they might now be, say, 20% underinsured. In a partial fire loss, the claim payout could be reduced by a similar proportion. Paint a picture: “Imagine spending all that money to improve your building’s efficiency, only to find an insurance payout won’t fully cover repairs because the policy was out of date.” This can motivate clients to act. Nobody wants their investment in upgrades to be jeopardised by lack of insurance coverage.

  
  

• Stay ahead of regulatory changes: Brokers in the UK – especially those in Scotland right now – should keep abreast of laws like the Heat in Buildings Bill and upcoming energy regulations. Proactive broker outreach can make a big difference. For example, you might identify landlord clients who will need to upgrade by 2028 and initiate a conversation: “You’ll be improving this property to meet new standards – let’s plan to reassess its rebuild cost once the work is done (or even get an estimate of the likely new rebuild cost now).” This not only helps the client avoid underinsurance, but also positions the broker as a forward-looking advisor, adding value beyond just price shopping.

  

• Validate premium adjustments with data: Some clients may be concerned that a higher sum insured (due to their eco-upgrades) will raise their insurance premium. Brokers should prepare to justify these adjustments. Often, showing the rebuild assessment report or data, for instance, “Your new air-source heat pump system adds £X to the rebuild value, and your specialist insulation adds £Y” – helps the client see that the premium increase is grounded in real improvements, not arbitrary. It’s also worth noting that certain energy-efficient upgrades can reduce other risks (for example, modern electrical rewiring or removing an old solid-fuel stove might reduce fire risk). In some cases, insurers may offer small premium credits for risk-reducing improvements, which can help offset the cost of insuring a higher rebuild value. Brokers can negotiate or highlight these, where applicable, to show clients a balanced picture.

  
  

The UK’s transition to energy-efficient buildings is necessary and ultimately positive – it will yield safer, greener, and more valuable properties. However, it is creating hidden pitfalls in property insurance. Underinsurance is already a pervasive issue, and the surge in rebuild costs from high-spec retrofits is making accurate valuations more important than ever. Insurance brokers have a vital role in navigating this transition. By staying informed, advising on coverage adjustments, and leveraging expert assessment services, brokers can protect their clients from the underinsurance risk while our building stock gets greener. Proactive insurance guidance is an essential part of supporting clients. The message to brokers and property owners alike is clear: going green should not mean being underinsured. With diligence and the right tools, we can ensure that energy-efficient buildings remain fully protected come what may.

Sources

• RebuildCostASSESSMENT.com – Is the tide really turning on buildings underinsurance? 

• Homebuilding.co.uk – how ‘deep retrofits’ could end up costing you a huge £69,000 – more than double the figure claimed by the government

• Dualinsurance.com – Rising rebuild costs a potential headache for clients