Underinsurance in Ireland: What It Means for Your Home Claim

By Jim Flannery ACII, Brand Ambassador, OMC Claims. Over 40 years in insurance claims and a founding member of the Irish Claims Consultants Association.

Underinsurance is a quiet problem. It costs nothing while everything is fine, sits invisibly on the policy schedule for years, and presents its bill on the worst possible day: the day you claim. Many Irish policyholders only discover the concept when a loss adjuster raises the adequacy of their sum insured at the kitchen table after a fire or a flood.

This guide explains what underinsurance is, how to tell whether it applies to you, what actually happens when you claim on an underinsured home, and the practical steps that fix it. If you are already mid-claim and underinsurance has been raised, a loss assessor can review the figures before you accept any reduction.

What is underinsurance?

Underinsurance is the gap between what your policy would pay and what your loss would cost. For buildings cover, it means the sum insured on your schedule is lower than the true cost of rebuilding your home, including demolition, professional fees and compliance with current building regulations. For contents cover, it means the sum insured would not replace what you actually own. Either way, the policy is carrying less than the risk, and the consequences surface at claim time.

An example in euro

Your home would cost €300,000 to rebuild, but it is insured for €200,000. You are underinsured by €100,000, and you have effectively bought two thirds of the cover you need. If a fire causes €100,000 of damage, the insurer can reduce the payout to roughly two thirds, about €66,000, leaving you to fund the balance. On a total loss, the settlement is capped at €200,000 against a €300,000 rebuild. The mechanism doing this arithmetic is the average clause, and it applies to modest claims exactly as it applies to catastrophic ones.

Why underinsurance is so widespread in Ireland

Underinsurance is not a niche problem in Ireland; insurer research has suggested that as many as one in five homes carries a sum insured below the true rebuild cost. Three forces explain it. First, construction inflation: industry analyses estimate Irish rebuilding costs have risen by roughly a third since 2021, and the Society of Chartered Surveyors Ireland’s most recent guidance recorded costs rising again by around 7% year on year. A sum insured that stands still falls behind by default. Second, the market value confusion: a large share of policyholders set the figure from what the house would sell for, or from the mortgage, neither of which has any relationship to the rebuild cost. Third, the renovation lag: extensions and upgrades add rebuild cost the day they finish, but policies are typically only looked at once a year, if at all. None of these requires carelessness. They only require doing nothing, which is exactly why the problem is so common.

Am I underinsured? A quick self-check

You are at meaningful risk of underinsurance if any of the following is true:

• Your sum insured has not been reviewed, other than automatic indexation, in the last two to three years. Sometimes the indexation applied by insurers was for general inflation but not adequate to cover building cost inflation.

• You based the figure on the market value of your home or on the mortgage amount rather than on rebuild cost.

• You have extended, converted or significantly upgraded the house without telling your insurer.

• Your figure predates the sharp rise in Irish construction costs of recent years.

• You could not say what your sum insured is meant to include (demolition, site clearance, fees, VAT).

None of these makes underinsurance certain, but each one is a reason to check the figure against the current SCSI rebuild guidance or a professional valuation. Our guide to the buildings sum insured covers exactly what the number must include and how to calculate it.

How do homes become underinsured?

• Construction inflation. Materials and labour rise year on year, and a sum insured that is not adjusted falls behind automatically. A policy set several years ago and never revisited can be significantly short today.

• Home improvements. An extension, attic conversion or high-specification kitchen raises the rebuild cost the day it is finished. If the policy is not updated, the gap opens immediately.

• Market value confusion. The most common error of all: insuring the house for what it would sell for. Market value and rebuild cost are unrelated figures, and either can be higher than the other depending on where you live.

• Outdated valuations. Building regulations and safety standards change, and both push rebuild costs upward. A valuation from years ago no longer describes today’s rebuild.

What happens if you claim on an underinsured property?

Three things, in sequence. First, the adequacy of your sum insured is checked: the loss adjuster will assess the rebuild cost of the property, commonly against the SCSI guidance, as a routine early step. Second, if the property is underinsured, the insurer can apply the condition of average and reduce the payout in proportion to the shortfall, on partial claims as well as total losses. Third, the shortfall becomes your cost: savings, borrowing, or a repair specification cut to fit the money available.

It is worth knowing that the insurer’s rebuild figure is not beyond argument. The assessment of the value at risk, and what has been included in it, can be tested and negotiated with proper evidence, and we have had considerable success doing precisely that where underinsurance was suggested. If average is being applied to your claim, have the figures reviewed before you accept them.

How to calculate underinsurance

• 1. Establish your true rebuild cost. Use the current SCSI guide for a standard estate-type house, or a professional reinstatement valuation for anything non-standard. Include demolition, site clearance, professional fees and VAT.

• 2. Compare it with your sum insured. Take the buildings figure from your policy schedule.

• 3. Work out your cover ratio. Divide the sum insured by the rebuild cost. Anything under 100% is underinsurance, and the percentage is roughly what you can expect of any claim.

Example: a rebuild cost of €300,000 against a sum insured of €200,000 gives a cover ratio of 66%. In the event of a claim, a payout of around 66% of the loss is the realistic starting point.

Contents underinsurance

Buildings cover gets the attention, but contents policies can be underinsured in exactly the same way, and many apply the same condition of average. The test is simple and sobering: if you had to replace everything you own at today’s prices, would your contents sum insured cover it? Walk the house room by room, including wardrobes, kit in the attic and anything of particular value, and total it honestly. High-value items such as jewellery, art or equipment often need to be specified individually on the policy to be fully covered, and an unspecified item can be limited to the policy’s single-article limit regardless of what it is worth. A contents figure picked years ago, or carried over unexamined from renewal to renewal, needs the same scrutiny as the buildings figure.

What is underinsurance protection?

Some insurers offer underinsurance protection: a buffer, commonly in the region of 10% above the sum insured, that absorbs minor shortfalls before average is applied. It is a genuinely useful feature for small discrepancies, such as an unexpected jump in material costs between renewals. It is not a substitute for an accurate sum insured, and it will not bridge a serious gap between the figure on your schedule and the real rebuild cost. Treat it as a margin for error, not as cover for guesswork.

How to avoid underinsurance

• Review the sum insured at every renewal. Ten minutes against the current SCSI figures is the cheapest protection available.

• Get a professional valuation periodically. For non-standard, period or extended properties especially, a reinstatement valuation by a qualified surveyor every few years keeps the figure honest.

• Update the policy when you renovate. Tell your insurer when the work completes, not at the next renewal. The gap between the two is uninsured exposure.

• Include the full rebuild scope. Demolition, site clearance, temporary works, professional fees, planning and utility charges, and VAT all belong in the figure.

• Use index linking, sensibly. Index-linked policies adjust the sum insured with building cost inflation, which prevents drift, provided the starting figure was right.

Frequently asked questions

What does underinsurance mean?
Being insured for less than your true exposure. For buildings cover, it means your sum insured is below the real cost of rebuilding your home; for contents, below the cost of replacing what you own.

What happens if I am underinsured?
Under the condition of average in most policies, any claim payout can be reduced in proportion to the degree of underinsurance, on partial claims as well as total losses. The shortfall falls to you.

What is an example of underinsurance?
A home with a rebuild cost of €300,000 insured for €200,000 is underinsured by €100,000. The owner has roughly two thirds of the cover needed, and can expect roughly two thirds of any claim to be paid.

Is the market value of my home the same as the rebuild cost?
No. Market value reflects location and demand; rebuild cost reflects construction expenses, fees and compliance with current regulations. The two have no fixed relationship, and insuring at market value is one of the most common causes of underinsurance.

What costs are included in the rebuild value?
The full cost of reinstatement: demolition, site clearance and disposal, the new build itself, professional fees, planning and utility charges, an allowance for construction inflation, and VAT.

Can underinsurance affect small claims?
Yes. The condition of average applies to partial claims in exactly the same proportion as total losses, which is why most people discover their underinsurance on a modest claim.

Can I challenge an underinsurance reduction on my claim?
Yes. The insurer’s assessment of your rebuild cost is evidence-based opinion, not fact, and it can be tested with a professional reinstatement valuation and detailed measurement. A loss assessor can prepare and negotiate that challenge on your behalf.

About OMC Claims

OMC Claims (Owens McCarthy Ltd) is Ireland’s largest independent firm of loss assessors, acting only for policyholders, never for insurers. We provide nationwide coverage, with loss assessors serving Dublin, Cork, Limerick and every other county in Ireland. Part of the Fexco group and regulated by the Central Bank of Ireland (Registration Number C-46734), our team brings over 250 years of combined claims experience and handles more than 2,000 home and business claims a year, from straightforward domestic losses to large and complex commercial claims. We assess the damage, prepare and value your claim, and negotiate with your insurer to work to secure the settlement you are entitled to.

Disclaimer: This content is for general informational purposes only and aims to provide an overview of underinsurance. It does not constitute legal, financial, or insurance advice. For guidance tailored to your specific circumstances, please consult a claims professional or your insurance broker/provider.