An indexed linked insurance policy aims to automatically adjust the sum insured to account for inflation, helping to combat underinsurance in the event a full rebuild is required. 

However, how effective of a protection it is often depends on market conditions, and 2026 is already shaping up to make index linked insurance a particularly unstable failsafe.

In this guide, we explain why relying on index linking alone to prevent underinsurance in 2026 is a risky endeavour  – and what you can do to ensure you’re fully covered when you need it most.

What’s going on in 2026 that makes index linking insurance a risk factor?

Index linked insurance can be spotty at the best of times, but the economy of 2026 is already straining the accuracy of the adjustment process due to the cost of labour, regional differences in construction costs, and regulatory settling. 

Whether you’re currently comparing buildings insurance or already have an index linking policy in place, here are the need-to-know details to safeguard against potential underinsurance.

Labour shortage and wage increases are slow to hit the index

Construction labour shortages and wages are positioned to be the driving force of inflation in 2026, with materials inflation cooling, comparatively speaking. This is a major fork in the spokes for index linking as a protection for rebuild shortfall.

Index linking insurance is called so because it uses the data in indexes like the Building Cost Information Service (BCIS) to calculate how much a sum insured should increase to match construction inflation costs.

This approach is fine for monitoring factors that hit the indices quickly, such as materials costs. But some, like labour shortages or wage increases, are more slowly incorporated, creating a lag that prevents index linking from accurately adjusting your insurance coverage.

To make matters worse, as indices are showing a stabilisation of materials costs after the supply chain shocks of 2022/23, they suggest to insurers that inflation is under control, reducing index link adjustments to your sum insured while the actual cost of a rebuild is higher than ever.

It can take between 6 and 12 months for the real-world market rates of labour costs to reach the indices. Need a rebuild before the lag is resolved, and you’re likely to be underinsured.

Regional decoupling of construction costs

Index linked insurance providers base adjustments on national averages. They don’t factor regional differences in construction costs, and the more pronounced these locational differences become, the less meaningful the averages become, resulting in inaccurate adjustments to the sum insured.

The current divergence of regional construction costs in the UK isn’t strictly a 2026 or even a 2025 symptom. Rather, it’s something that’s been playing out over the last 5 years or so due to a combination of economic factors, including Brexit, major regional projects, and labour shortages.

You can learn more about how location impacts rebuild costs in our guide: Does location affect the rebuild costs of your property?

2026 regulatory hardening

A significant share of post-2024 building regulation changes are not new in 2026, but 2026 is the point at which they begin to bite hardest.

Environmental, fire safety, habitability and resilience standards introduced or revised in 2024–25 are now fully embedded in building control practice. Transitional arrangements have largely fallen away, and regulators are enforcing compliance more consistently. What may have been discretionary, negotiable, or unevenly applied in earlier years is now treated as baseline.

• Related – EPC requirements for UK landlords in 2026 – and underinsurance risk

In short, the costs of regulation are now becoming tangible, yet it might be a while before this reflects in indices, and therefore, in the adjustments of your index linked insurance coverage.

Index-linked sums insured are designed to track construction cost inflation, not regulatory change. They are backwards-looking by nature, built from completed projects and tender data that reflect what has already been built, not what is about to become mandatory. That creates a timing gap.

The index reflects yesterday’s compliant buildings, many of which benefited from transitional arrangements, pre-regulation designs, or developer-led efficiencies. A rebuild in 2026, by contrast, must meet today’s standards in full, and in the absence of appropriate index link adjustments, you could well be left to cover the difference out of pocket.

How to ensure your property is fully covered at rebuild value in 2026?

With economic conditions impacting the effectiveness of index link insurance policies, it’s crucial to book a reinstatement cost assessment to get an accurate valuation of your property’s rebuild cost, especially if you haven’t had your property assessed in the last 3 years.

At Cardinus, we offer expert building reinstatement cost assessments as part of our range of property risk management services. Tell us a bit about your property, and we hand select an assessor based on their experience with your specific building type, ensuring you get a precise valuation you can use to adjust your insurance coverage with confidence.

With nationwide service, we can reach you wherever you and your properties are. Just fill out our short contact form to get started.