Fires & Underinsurance: What claims and risk experts need to know
11/11/2025
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 & 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 & 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 & 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 & 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 & 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.
