In high-net-worth (HNW) property insurance, we’ve spent years rightly focusing on the risks of underinsurance.
Recent data suggests around 70% of UK properties are insured for less than their true rebuild cost. That’s a serious issue.
But there’s another side to this conversation that doesn’t get enough attention: overinsurance.
More and more, I’m seeing premium homes insured for significantly more than their true rebuild cost. On the surface, that can feel like the “safe” option. After all, no one wants to fall short in the event of a claim. But high value doesn’t mean high guesswork. And setting the sum insured too high can be just as problematic as setting it too low.
INFLATED PREMIUMS
When a property is overinsured, the client is effectively paying inflated premiums for cover they will never be able to claim.
In most policies, insurers will only pay the actual cost of reinstatement, not the full sum insured if it exceeds that amount. So the additional premium delivers no meaningful benefit.
For brokers, there’s a further dimension. Under the FCA’s Consumer Duty rules, firms must be able to demonstrate fair value.
If a sum insured is materially higher than the genuine rebuild cost, that can raise uncomfortable questions.
An inflated figure may complicate fair-value assessments, particularly during audits, and in some circumstances could lead to remediation where clients are found to have overpaid.
MARKET VALUE vs REBUILD COST
In my experience, overinsurance often stems from confusion between market value and rebuild cost. They are not the same. Market value includes land, location and demand. Rebuild cost relates purely to the expense of reinstating the structure.
In the HNW space, complexity adds another layer. Unique materials, specialist craftsmanship and heritage considerations all require careful analysis.
I also regularly see architect or contractor build estimates used as a proxy for insurance purposes. These figures are produced for a different objective and often include allowances or elements that do not align precisely with insurance reinstatement principles. That mismatch can unintentionally inflate the declared value.
The solution is not to aim high “just in case”. It’s to aim accurately.
A professionally conducted Reinstatement Cost Assessment (RCA) provides that precision.
It considers materials, specification, heritage constraints, demolition, professional fees and current cost indices.
Just as importantly, it creates a transparent audit trail. For brokers, that evidence is invaluable when demonstrating compliance with Consumer Duty and fair-value requirements. For clients, it provides reassurance that they are neither underinsured nor overcharged.
Today’s data tools and cost modelling indices allow us to produce robust, defensible calculations, even for highly individual homes. The idea that a unique property must inevitably come with a margin of error is outdated.
Ultimately, the most effective validation isn’t the highest figure. It’s the most accurate one. In the HNW market, precision protects premiums, strengthens trust between broker and client, and supports regulatory confidence.
High value doesn’t mean high guesswork. It means getting the numbers right.
