Underinsurance has become one of the most serious and costly risks facing Irish homeowners and businesses today. As construction and rebuild costs continue to rise sharply across Ireland, many insurance policies no longer reflect the true cost of rebuilding a property after a loss. The result is a growing protection gap that only becomes visible when a claim is made, often with devastating financial consequences.
Regulators, insurers, surveyors, and the media have all warned that underinsurance is now widespread in Ireland, driven by inflation, outdated sums insured, and a lack of awareness around rebuild costs.
What Is Underinsurance?
Underinsurance occurs when the sum insured on a policy is lower than the actual cost to rebuild or replace the property or assets. This is particularly dangerous because, in the event of a claim, insurers apply the average clause, reducing the payout in proportion to the level of underinsurance.
For example, if a building is insured for €300,000 but costs €450,000 to rebuild, the policyholder is effectively only insured for two-thirds of the risk, and the claim payout will be reduced accordingly.
Key reasons for underinsurance
Inflation & Rising Costs
One of the primary drivers of underinsurance in Ireland is the rapid and sustained increase in construction and rebuild costs. Over recent years, the cost of materials, labour, and energy has risen sharply, while stricter building regulations and sustainability requirements have further added to rebuild expenses. These increases have significantly outpaced the rate at which many insurance policies have been reviewed or updated.
As a result, sums insured that were adequate only a few years ago may now fall far short of the true cost of rebuilding a property. The Central Bank of Ireland has repeatedly warned that outdated sums insured are leaving homeowners dangerously exposed to underinsurance risk.
Failure to Update
Another major contributing factor is the failure of homeowners and businesses to regularly review their insurance policies. Many policies are renewed year after year without reassessing whether the level of cover remains appropriate. During that time, properties may be extended, interiors upgraded, equipment added, or business operations expanded, all of which increase the cost of replacement or reinstatement.
Even without physical changes, inflation steadily erodes the real value of cover. In a high-inflation environment, such as Ireland has experienced since 2021, this lack of regular review can quickly result in significant underinsurance.
Assumption vs reality
Confusion between market value and rebuild cost also plays a critical role. Many policyholders assume that a property’s market value is an appropriate figure to insure, when in reality insurance should be based on the full cost of rebuilding the structure from scratch.
Rebuild cost includes demolition and site clearance, professional fees such as architects and engineers, compliance with current building regulations, increased labour and material costs, and VAT, as well as inflation over the rebuild period. Market value, by contrast, is influenced by location, demand, and broader economic conditions. The gap between these two figures can be substantial, leading to severe shortfalls when a claim is made.
Lack of Awareness
A lack of awareness compounds the problem further. In many cases, underinsurance is only discovered after a loss occurs, such as a fire, flood, or storm event. At that point, policyholders may be shocked to find that their claim settlement is reduced due to the application of the average clause. This issue is not limited to residential properties.
According to The Irish Times, as many as nine out of ten Irish commercial properties may be underinsured, exposing businesses to potentially catastrophic financial consequences following a major loss.
Rebuild Cost Trends Across Irish Counties
To fully understand the scale of underinsurance in Ireland, it is essential to look beyond national averages and examine how rebuild costs have changed at county level over time.
The latest House Rebuilding Guide published by the Society of Chartered Surveyors Ireland (SCSI) for 2025/26 shows that the national average rebuild costs, which include demolition and site clearance, have increased by an average of 7% over the past 12 months. This is up from the 6% rate of increase recorded last year but thankfully well down on the 12% increase recorded in 2023.
Regional trends reveal that this inflation is not uniform across the country. According to the SCSI guide, the increase in rebuild costs over the last year ranges from around 3% in Cork to approximately 5% in Dublin, with regions such as the North West experiencing around 9% growth.
This kind of variation reflects differences in labour availability, local market demand for construction services, and regional supply chain dynamics. It demonstrates that relying on a single national rebuild cost figure, or an outdated policy sum insured, can lead insurers and policyholders alike to misjudge the true exposure of a property.
The maps below show the average rebuild cost for a standard 3-bedroom semi-detached house across regions under the 2024/25 and 2025/26 SCSI guides, illustrating how baseline exposure has shifted geographically.
Between the two reporting periods, rebuild costs increased in every region, but not evenly. For example:
- Dublin rose from €312,620 to €331,338
- The North West increased from €247,744 to €270,088
- The North East rose from €271,460 to €293,216
- Galway increased from €269,500 to €288,414
- Limerick rose from €267,834 to €286,552
- Waterford increased from €271,950 to €290,962
- Cork moved from €280,280 to €288,708
While Dublin remains the highest-cost region in absolute terms, percentage growth tells a more nuanced story.
For the same three-bedroom semi-detached house, rebuild cost inflation varies materially by region. The map below highlights this geographic divergence in construction inflation.
The full percentage increases per region for both the 2024/25 and 2025/26 SCSI guides are:
Region | % Increase 2024/25 (SCSI) | % Increase 2025/26 (SCSI) |
Cork | 8% | 3% |
Dublin | 3% | 5% |
North West (e.g., Mayo/Roscommon/Sligo) | 10% | 9% |
Galway | 4% | 7% |
Limerick | 5% | 7% |
Waterford | 6% | 8% |
North East | 8% | 8% |
National Average | 6% | 7% |
Source: SCSI Average Rebuilding Costs (September 2024) and SCSI Average Rebuilding Costs (October 2025)
Two patterns stand out:
- Inflation has moderated in some regions (notably Cork, falling from 8% to 3%).
- Other regions remain structurally elevated, particularly the North West (10% → 9%) and the North East (8% → 8%).
This divergence means that relying solely on national averages masks meaningful local exposure shifts.
The year-on-year euro increase map isolates the financial impact of that inflation. In other words, even where percentage inflation appears to moderate, the absolute impact on sums insured remains material.
The Importance of Property-Level Rebuild Costs
While the SCSI rebuild cost guide provides an essential national benchmark, its methodology is necessarily based on standardised assumptions. For example, a “typical” detached house is assigned a standard floor area of 119 m2, which is then multiplied by the regional rebuild cost per square metre to calculate a total estimate.
In practice, however, properties rarely conform exactly to these averages. A detached house may be significantly larger or smaller than the assumed size. This is where more granular data becomes critical.
Gamma’s AddressLink database enhances rebuild cost accuracy by incorporating property-specific characteristics such as building type, footprint size and number of storeys. Rather than relying solely on assumed “typical” sizes, rebuild cost estimates can be calculated based on the actual building dimensions.
For insurers, this provides a materially more accurate view of exposure. A smaller-than-average property is less likely to be overinsured, while a larger or extended property is less likely to fall short of the true rebuild cost. By grounding estimates in real building geometry rather than national averages alone, insurers can reduce systematic underinsurance risk across their portfolios and improve confidence in capital modelling and claims outcomes.
Conclusion
As rebuild costs continue to rise unevenly across regions and property types, insurers face increasing exposure to misaligned sums insured, particularly within legacy property policy books written before recent inflationary pressures took hold.
In an environment where the Central Bank of Ireland has emphasised consumer protection and transparency, insurers are under growing pressure to demonstrate that they are taking reasonable steps to help customers understand and avoid underinsurance, rather than relying on corrective measures after a loss.
Underinsurance also has significant implications for catastrophe modelling and capital management. Where rebuild costs are understated, insurers may underestimate potential loss severity, particularly in counties experiencing higher construction inflation or increased exposure to climate-driven perils such as flooding and windstorm. This can distort portfolio risk assessments, accumulation analysis, and reinsurance purchasing decisions, leaving insurers exposed during extreme events.
Insurers increasingly need rebuild cost intelligence that reflects current construction economics, regional variation, and property-specific characteristics. This is where granular data becomes essential, enabling insurers to identify underinsured risks early, adjust sums insured at renewal, and reduce systemic exposure across their books.