From government schemes and ambitious net-zero goals to reputational gains and cost savings on heating and electricity, there’s plenty of incentive to go green with energy efficient property upgrades.

However, like any significant improvement, eco upgrades can quietly raise your property rebuild value beyond your current coverage, resulting in severe financial vulnerability.

And even if you haven’t made any energy-efficient improvements, new legislation means you’re still at risk!

If you’ve made eco upgrades to your property, you may be underinsured

Property owners who have invested in significant energy efficiency upgrades without adjusting their insurance coverage are now almost certainly underinsured.

That new heat pump that set you back £12,000 won’t be covered by your insurance; your old £2,000 boiler system will. That high-performance insulation you installed at £100 per square metre will be valued as if it were standard rolls of fibreglass at a fraction of the cost. Those new triple-glazed, low-emissivity windows you installed at £500–£1,000 each will only be insured as if they were basic double-glazed units worth half that.

True, a government grant may have helped cover the installation costs of some of the above, but you won’t get a penny to balance an insurance shortfall should your property be destroyed.

Why you may be underinsured if you haven’t made green property upgrades – The Future Homes and Buildings Standards

Known collectively as The Future Homes and Buildings Standards, the Future Homes Standard (FHS) and the Future Buildings Standard (FBS), set out new minimum energy efficiency rules for commercial and residential buildings across the UK.

The latest iteration of these standards will come into action at some point in 2025 – although no specific dates have yet been revealed.

Under the FHS (the domestic half of the initiative), all new homes must be produce 75-80% fewer carbon emissions than homes built in accordance with 2013 standards. Similarly, Under the FBS (the commercial half), buildings will be required to meet one of two yet-to-be-agreed-on standards:

• A 27% reduction in carbon emissions compared to the previous standard – this more ambitious option is the government’s preference.
• A 22% reduction in carbon emissions

The Future Buildings Standard (FBS) builds on the 2021 Building Regulations uplift (in force from June 2022), which already required new non-domestic buildings to deliver a 27% reduction in carbon emissions compared to previous Part L standards.

Compliance with both of these standards will be mandatory.

So, what does this have to do with underinsurance for those who own existing commercial and residential structures?

Well, included under the umbrella of “new builds” are rebuilds of older properties – should the existing structure be severely damaged or destroyed.

Let’s say, for instance, that your property of 10 years is destroyed in a flood or fire in 2026. If you want to rebuild, the new structure’s energy efficiency and carbon footprint will need to be brought up to the latest standard.

This might include the use of sustainable materials, more efficient heating systems, improved ventilation, and high performance insulation – things your original structure probably lacked… things that don’t come cheap.

The rebuild cost of your building will therefore have risen (potentially significantly!), meaning you may be drastically underinsured, and you’ll have to pay out-of-pocket to cover the deficit, as well as losses related to the “average clause”.

Learn more about the average clause here.

Will there be penalties for non-compliance with the Future Homes and Buildings Standards?

Local authorities have the power to prosecute those carrying out construction projects “in contravention” of the Building Regulations under the Building Act 1984.

As such, construction firms that fail to comply with the Future Homes and Buildings Standards may face fines, and individuals may even face up to two years’ imprisonment. If the property owner is actively commissioning the build, they may be liable for prosecution as the developer of the offending project.

Local authorities are also unlikely to issue a completion certificate for any non-compliant buildings, preventing you from legally occupying the property. No certificate of completion also introduces resale complications, including extensive devaluation.

Furthermore, mortgage lenders and insurers may refuse to be involved unless remedial works are carried out to bring it up to code.

In short, non-compliance is not an option. 

Combat underinsurance, not regulation, with an expert Reinstatement Cost Assessment from Cardinus.

By how much could I be underinsured if my residential rebuild must meet the FHS?

For homeowners, based on industry data, adding low-carbon upgrades like high-performance insulation, triple glazing, heat pumps, and PV systems to meet the Future Homes Standard typically increases new building costs by at least 4–8%, or around £5,000–£10,000 per average-sized home.

If you incorporate more comprehensive features, such as infrared heating, solar panels, and batteries, the premium can rise to £11,600 or more.

A fully net-zero operational build might cost up to £20,000 extra, roughly 10–14% over a conventional build.

Needless to say, retrofitting can be even more expensive, so for those who try to get away with rebuilding without ecological upgrades and get caught out, something to the tune of an additional £30,000-£70,000 may be required to get the property up to spec.

By how much could I be underinsured if my commercial rebuild must meet the FBS?

According to the government’s impact assessment, the estimated increase in capital costs for various commercial building types to meet the 2025 FBS requirements is as follows:

• Deep-plan, air-conditioned office: £74–£96 per m² (2.1%–3.9% increase)
• Shallow-plan, naturally ventilated office: £67–£84 per m² (1.9%–3.4% increase)
• Retail warehouse: £53–£113 per m² (3.0%–6.3% increase)
• Distribution warehouse: £49–£109 per m² (2.7%–6.0% increase)
• Hotel: £99–£111 per m² (3.3%–3.7% increase)
• Hospital: £58–£63 per m² (1.3%–1.4% increase)
• Secondary school: £72–£93 per m² (2.4%–3.1% increase)
• Average across building types: Approximately 2.5%–4.5% increase

So, for example, let’s say that the current rebuild value of your commercial property is £600,000, and the cost increase of a rebuild to meet FBS requirements is 3% (a mid-range estimate); you’re looking at £18,000 your insurance isn’t going to cover. Not exactly pocket change!

Learn how often you should have a Reinstatement Cost Assessment.

How to combat eco-based property underinsurance 

Whether you’ve been proactive with low-carbon property renovations, your property is as it was 15 years ago, or you’re an insurance broker obligated to protect your clients, the only way to combat underinsurance is to book a Reinstatement Cost Assessment.

Cardinus has over 27 years of experience in property risk management, delivering 30,000 property surveys annually. Our nationwide network of highly qualified assessors can provide an up-to-date, accurate reinstatement valuation for any property type, wherever it’s located in the UK.

Over 80% of the properties we assess are underinsured, and with the new requirements set out by the Future Homes and Buildings Standards coming into effect this year, it’s only going to become more common.

Complacence can be costly – book a reinstatement cost assessment from Cardinus today.