firefighters in helmets at fire truck on street

Fires and underinsurance: What claims and risk experts need to know

11 November, 2025

Risk insights

Zurich and Shore Existing Solutions recently hosted a webinar exploring the growing risks of fire and underinsurance. With expert insights and real-world case studies, the session offered practical guidance for claims and risk professionals.

Emerging fire risks: Lithium batteries and solar panels

Stewart Powell from Zurich’s Large and Complex Property Claims team opened the session by spotlighting two major fire hazards:

Lithium-ion batteries: Found in phones, laptops, and e-scooters, these caused 40% of reported fires in 2024. Improper charging and disposal are the main culprits
Solar panels: Fires linked to poor installation and faulty wiring have surged by 65% since 2021

These trends highlight the need for proactive risk management and accurate insurance coverage to mitigate damage and financial loss.

Case study: Retail fire and the cost of underinsurance

A family-owned shoe retailer suffered a devastating fire across two interconnected stores. While stock and business interruption cover were sufficient, one building was insured for only 54% of its reinstatement value (based on purchase price, not rebuild cost).

Impact:

£70,000 shortfall in claim payout
Delays in rebuilding beyond the indemnity period
Financial strain and reputational damage

Lesson:

Insurance must reflect worst-case scenarios and be based on accurate reinstatement values rather than market value.

Case study: Rebuild costs and professional fees

Stacie Kennedy shared a second case involving a fixed sum insured of £9.5M, while the actual rebuild cost was £13.3M. The average clause reduced the insurer’s contribution to 72.83%, leaving a £567,000 funding gap.

A key issue was the underestimation of professional fees:

Initially set at 10%
Adjusted to 19% after review, aligning with industry norms

Outcome:

A fairer settlement and improved payout for the insured.

Takeaway:

Regularly review reinstatement cost assessments and ensure all associated costs i.e. VAT, fees, inflation etc. are included.

What is the average clause?

Jack Taylor from Shore Existing Solutions explained how underinsurance triggers the average clause, which proportionally reduces payouts.

Example:

Rebuild cost: £5M
Sum insured: £2.5M
Fire damage: £1M
Payout: £500K (only 50% of the damage)

Consequences:

Reduced claims
Financial hardship
Delays in recovery
Legal and reputational risks

The importance of Reinstatement Cost Assessments (RCAs)

Taylor emphasised the need for professional RCAs every 3–5 years, with annual index-linked updates.

A good RCA includes:

Accurate build costs
External works
Professional fees
Demolition and debris removal
Regulatory compliance

A poor RCA can result in:

Missing buildings or floors
Incorrect declared values (off by up to 250%)
Overreliance on AI or average rates

Tip: You get what you pay for, cheap RCAs often miss critical details.

Market trends: Construction costs and inflation

Since January 2020, the index has increased by 42.7%. Labour costs are up 7%, and material costs continue to rise. Properties not reassessed since 2020 may be significantly underinsured.

Key takeaways

76% of UK buildings are underinsured
Nearly £1.2B in underinsurance across the market
Regular RCAs are essential to ensure accurate coverage
Clear communication between insurers, brokers, and clients is vital

Final thoughts

The webinar concluded with a Q&A addressing portfolio-wide insurance adequacy, VAT exemptions, and RCA quality. The speakers urged attendees to prioritise accurate valuations and proactive risk management to avoid costly shortfalls and ensure fair outcomes.