Construction Inflation & Your Home Insurance: How to Avoid the Underinsurance Gap

March 2026

With rising inflation impacting on construction costs, how do you check to make sure you have correctly insured your home to avoid hidden surprises should you need to claim on your insurance? 

We have already seen a rise in inflation due to price pressures in the global economy coupled with the global impact of the war in Ukraine. According to the ESRI, the 2026 forecast shows a more stabilised but persistent construction tender inflation of approximately 2.7% to 3%. 

This is especially important in the construction sector, which has seen both materials and labour costs rise. The CSO advised in February that there were significant increases in building materials such as cement (up by 11%), timber (increased by 64%), electrical fittings (up by 18.5%), plaster (up by 30%) and glass (which has seen a 10.7% hike in prices) over last 12 months. In addition, construction labour costs are also expected to rise by 4.4% in the next 12 months.

In a recent article in the Irish Independent, The SCSI reported that by late 2025/early 2026, rebuilding costs in Dublin for a standard 3-bed semi-detached house have risen to approximately €331,340. In Cork, the price is €175,000 and, in the Northwest, it is €140,000. These are guide prices, further below, we recommend a tool that will help homeowners more accurately calculate rebuilding costs.  

* SCSI (Society of Chartered Surveyors Ireland) is the industry standard for these calculations.

It is easy to get confused between market value and rebuild cost when it comes to insurance. The market value is what the market dictates it will cost to buy someone’s home. However, this can be different to what the cost is to rebuild a house should it be destroyed by a fire, for example. The amount a customer has their home insured for is known as the “sum insured” and it is what the insurance company will put aside as budget for repairs at today’s prices for materials and labour. This is the maximum amount that insurers will pay regardless of the rebuild or market price of the property.

Due to this unexpected and sudden inflationary increase, customers may now find that their property is underinsured. Underinsurance is where the current rebuilds (or sum insured) estimate in their insurance policy may not reflect the current costs of repair or rebuilding at today’s rates. Recent 2025/2026 data show an estimated €39 billion underinsurance gap across Irish households.

Where a customer is underinsured, there can be several consequences. The claims payments or settlement may be reduced and the ‘average’ clause applied. This means if the customer doesn’t have adequate sums insured, it can reduce the settlement by the same percentage by which the asset is underinsured. For example, if your house was insured for €150,000. The insurer’s assessment, based on guidance from the Society of Chartered Surveyors Ireland and industry knowledge, is that the rebuilding cost is €200,000. Therefore, you were underinsured by €50,000, which is 25% of the estimated rebuilding cost. The insurer will proceed to handle the claim on the basis that they will pay for 75% of its cost and you will pay for the remainder.

Where possible, Allianz plans for this with index linked policies. Index linking is a measure to use to address and aid in preventing underinsurance. Ultimately, this is a safeguarding measure to ensure that our customers receive a fair settlement in the event of a valid claim. Customers are encouraged to check the sum insured on a regular basis. 

However, we would recommend that you understand this for yourself, so you are in a better position to calculate correctly and accurately the rebuild cost of your home. Here are two simple steps to do so:

1. House Rebuild Calculator ( https://scsi.ie/consumer/build/house-rebuild-calculator/): This tool is available from the Society of Chartered Surveyors Ireland to help consumers understand this gap cost. You simply put in the basic measurements, location and key home details. It will then calculate the rebuild cost and provide an estimate. This is an estimated cost, but it will then show you if you have calculated the rebuild cost of your home correctly to compensate for hidden costs.

2. Then visit MyAllianz to see the rebuild cost in your next renewal. There, you can adjust the insured amount and make sure you have correctly insured your property to minimize the risk of the inflationary gap impacting on any future claim.  

Ultimately, we want to help enable our home insurance customers to fully inform themselves and take steps to avoid being caught due to current and future inflation levels.  

Find out more information regarding underinsurance.

A: If you are underinsured, insurers apply the "Average Clause." This means if you only insured your home for the insured % of its true rebuild cost, the insurer may only pay the insured % of any claim you make, even for small repairs.

A: Most modern policies, including those from Allianz, include "Index Linking." This automatically adjusts your sum insured at renewal based on national indices. However, if you have renovated or extended your home, you must manually update your policy to reflect the new size.

A: No. Market value includes the value of the land and the desirability of the location. Insurance (Rebuild Cost) only covers the cost of clearing the site and physically rebuilding the structure. In many parts of Ireland, the rebuild cost is higher than the market value.

Allianz p.l.c is regulated by the Central Bank of Ireland. Standard acceptance criteria apply.

Information correct as at 28/03/2026