Earlier this month, we explained the important difference between a property's market value and its rebuild cost, and why buildings insurance should be based on the latter. Since then, new figures published following in a report commissioned by the Isle of Man Government have highlighted just how important that discussion has become.
Construction costs on the Isle of Man are now reported to be 18% higher than the UK average, with costs comparable to parts of outer London and further increases are forecast over the next two years.
For homeowners, landlords and commercial property owners, this raises an important question:
If your property needed to be rebuilt today, would your current sum insured be enough?
Why Rebuild Values Need Regular Review
The cost of rebuilding a property is not static. It rises and falls in line with construction market conditions, labour costs, material prices and regulatory requirements.
According to the review, the Isle of Man continues to face several challenges that are driving building costs higher, including:
- Reliance on imported construction materials
- Rising transport and fuel costs
- Shortages of skilled labour
- Planning delays that can increase project costs over time
These factors are already contributing to higher construction costs, and the report forecasts further tender price increases of 7.5% in both 2026 and 2027.
For property owners, this means a rebuild valuation carried out several years ago could now be significantly out of date.
The Hidden Risk of Underinsurance
Many people only discover they are underinsured after making a claim.
If your building is insured for less than its true rebuild cost, insurers may apply an average clause, reducing any claim settlement in proportion to the level of underinsurance.
For example, if a property's true rebuild cost is £1,000,000 but it is insured for only £750,000, the insurer could treat the property as being insured for just 75% of its value. In the event of a £200,000 claim, the payout may be reduced accordingly.
This can leave property owners facing substantial unexpected costs at what is already a difficult time.
Isle of Man Costs Are Different
One challenge for Island property owners is that many online rebuilding cost calculators are based on UK data.
As we highlighted in our previous article, these tools can provide a useful starting point, but they may not fully reflect Isle of Man construction costs, site conditions or supply chain factors. With local building costs now significantly above the UK average, relying solely on generic calculators could result in an inaccurate sum insured.
This is particularly relevant for:
- Older properties
- Listed buildings
- Properties with bespoke construction features
- Commercial premises
- Buildings that have been extended or significantly renovated
Commercial Property Owners Should Be Particularly Vigilant
For commercial buildings, rebuild costs can be influenced by far more than the basic structure itself.
Professional fees, site clearance, specialist construction methods, compliance with current regulations and external works can all have a considerable effect on rebuilding costs. Rising construction inflation only increases the importance of keeping valuations up to date.
Businesses that haven't reviewed their buildings sums insured for several years may find that the gap between their insured value and actual rebuild cost has widened significantly.
When Should You Review Your Buildings Sum Insured?
A review should be considered if:
- Your property has been extended or altered
- Significant refurbishment work has been completed
- It has been several years since your last rebuild assessment
- Your insurance renewal is approaching
- Construction costs have increased materially since your last valuation
Given the current market conditions and projected cost increases, now is a sensible time for property owners to revisit their figures.
A Small Review Could Prevent a Costly Mistake
Buildings insurance is designed to put you back in the position you were in before a loss. However, that protection only works if the sum insured accurately reflects the cost of rebuilding the property today. With Isle of Man construction costs continuing to rise above UK levels and further increases expected, ensuring your rebuild value remains accurate has never been more important.
If you are unsure whether your current buildings insurance reflects the right rebuild value, contact the team on 01624 654000 or email insurance@edgewater.co.im for a review of your cover. A quick conversation today could help prevent an expensive mistake tomorrow.
