What is Driving the Growth in Index Linking on Sums Insured?

What is Driving the Growth in Index Linking on Sums Insured?

Index linking is applied by insurers to ensure that an asset's insured value is adjusted in line with changes in inflation, deflation and the cost of living. It's commonly used in buildings insurance to calculate the difference between the sum insured and a property's rebuild value.

We are seeing significant change, with increases on buildings currently, anywhere from 11% to 25% and upwards. What is driving this?

Firstly, it is critical we have the correct sum insured, irrespective of index linking.

Secondly, here is what is broadly behind these increases:

  • Site clearance costs
  • Location and access of the property
  • Post-incident investigation time
  • Planning permission. The time it can take to get permission to rebuild continues to grow. This is driven by new regulations, local authority resource and objections from local stakeholder’s which must be addressed. All these points add to the rebuilding time and costs.
  • Availability, supply and demand of both labour and materials (supply chain). The impact of Brexit continues to influence the market.
  • Having to replace existing material with more robust and environmentally friendly modern materials are adding to costs.
  • Fuel costs – additional costs of getting to site, use of plant and machinery (electricity).
  • Recent amendments to Building Regulations Parts L (energy performance), ventilation systems, O (overheating) and S (electronic vehicles) which has a baring on why their residential vs commercial rates differ.
  • VAT (impact on a partial rebuild).


  • Contents, plant machinery and stock sum insured are also being impacted, again changes to these need to be carefully considered.
  • Indemnity periods for loss of rent periods for property owners need to be reviewed.
  • Likewise, business interruption indemnity periods, extensions on supplier, customers need to be revalued and amended accordingly.

This list above is by all means not exhaustive but adds some context behind this growing trend. For more context on the above points, see the Aviva report on Rebuilding Period and Rebuilding Valuation.

We can help with providing Royal Institution of Chartered Surveyors (RICS) approved valuations. Speak to your usual Towergate advisor for details.