Construction materials inflation has been easing but labour costs continue to be high, creating potential issues for the unwary as reinstatement values can shift rapidly, according to RebuildCostASSESSMENT.com
Recent government data shows materials price growth easing, with the ‘All Work’ materials index rising 3.3% in the year to December 2025. However, construction earnings data and insurer commentary continue to highlight labour shortages and sustained pay growth. Where there are shortages in skilled trades, repair and reinstatement costs remain under major pressure.
“Labour availability is currently a more significant cost driver than materials,” says Sharon Masters, Technical Lead and Surveyor at RebuildCostASSESSMENT.com. “Where skilled trades are in short supply, labour rates increase and reinstatement costs follow.”
Official earnings data shows construction-sector pay growth remained elevated in 2025, with a 6.4% increase in the three months to March 2025. Labour availability also remains constrained. Several core construction trades, such as electricians and plumbers appear on the UK’s Skilled Worker Temporary Shortage List. This is a practical indicator of ongoing skills pressure in key roles. Where labour is harder to secure, both construction timelines and contractor pricing can be adversely affected.
Index linking can be a useful baseline, but it remains an average and does not always reflect local labour market conditions or property-specific reinstatement requirements. Where sums insured are carried forward year-on-year or using index linking alone, they can gradually drift away from the true rebuild cost. This risk increases after extensions, refurbishments, or changes in local labour availability.
Labour costs can account for 60% of total repair and reinstatement spend
Labour is often the largest component of repair and reinstatement spending. In many insurance repair cost indicators, it accounts for around 60% of the total and that weighting really matters. If labour rates increase, the buildings sum insured can fall out of alignment much more quickly than expected. Where a policy applies an average clause, underinsurance could reduce a claim settlement, in proportion to the shortfall. The Building Cost Information Service has reported that “Labour cost pressures remain a key concern for the industry” and expects construction output growth to pick up from 2026.
Regular Reinstatement Cost Assessments (RCAs) remain essential to maintaining accurate sums insured. As a general guide, a professional assessment should be undertaken at least every three years, with index-linked adjustments in the interim and sooner where a property has undergone material change.
A robust, auditable RCA provides a clear evidence base for the declared sum insured. It can also support firms in demonstrating fair value under the FCA’s Consumer Duty by showing how the figure has been calculated and reviewed.
Sharon Masters concludes: “The message is simple: reassess rather than assume. A professional RCA can help you sense-check that your buildings sum insured reflects current reinstatement costs and reduces the risk of shortfalls at claim time.”
