Property Valuation
Renovation Potential Report
Underinsurance Risks
Did you know that numerous properties in Germany are unknowingly underinsured? A small mistake in the policy can lead to cuts of over 20% in the event of a claim. This article highlights the biggest risks and how to specifically eliminate them.
With access to Google, BORIS, and Deep Research.
Underinsurance occurs when the sum insured is less than the actual reinstatement value of a property.
In the event of a claim, insurers reduce the payout proportionally to the underinsurance, which also applies to partial damages.
The main causes are the significantly increased construction costs (over 60% in 12 years) and unreported value-enhancing renovations.
Are you sure that your property is fully covered in the event of a serious incident? The reality is often different. Rapidly rising construction costs and contracts that haven't been updated for years create a dangerous gap: underinsurance. This means that the agreed insurance amount no longer covers the actual reconstruction value of your building. The financial consequences can be severe, potentially leaving you with costs running into tens of thousands of euros. We explain the causes, highlight the specific financial risks of underinsurance, and provide you with a clear strategy on how to effectively protect your property.
Underinsurance occurs when the sum insured in your policy is lower than the actual value of your property. Insurers already speak of significant underinsurance when there is a difference of 10%. In the event of a loss, compensation is then proportionately reduced in relation to the sum insured to the actual value. This applies not only in the case of a total loss but also to smaller partial losses, which surprises many property owners. The financial risks are considerable and often go unnoticed. The causes are varied and develop gradually over the years.
The most common cause of underinsurance is the increase in property value, which is not reflected in policies. Construction prices for residential buildings in Germany have risen by 64% between 2010 and 2022 alone. An insurance sum set ten years ago is highly likely to be insufficient today. Additionally, unreported modernisations or extensions often contribute to this. A new heat pump, a solar panel on the roof, or a converted attic can quickly increase a building’s value by five-figure amounts. If these changes are not reported to the insurer, a coverage gap arises. The consequences of outdated valuations therefore represent a direct financial risk for every property owner.
The consequences of underinsurance are best illustrated by a concrete example. Suppose the actual reconstruction value of your house is 500,000 euros. However, your insurance policy only shows a sum of 400,000 euros. This means you are correctly insured to 80%, with an underinsurance of 20%. Now, a storm causes damage to the roof amounting to 50,000 euros. The insurer will not reimburse the full 50,000 euros. Instead, they will pay only 80% of the damage, which is 40,000 euros. You will be liable for the remaining 10,000 euros. This principle of proportional reduction is established in the Insurance Contract Act (VVG) §75. Therefore, a precise risk assessment of your property is essential.
Many older contracts use what is known as the "1914 value" to calculate the insurance sum. This is a fictitious calculation value that indicates what a new building would have cost in 1914 in gold marks. To determine the present-day value, this base value is multiplied by the construction price index published annually by the Federal Statistical Office. The system is coherent in itself, but it harbours sources of error. If an outdated construction price index is used or if the 1914 value was originally set incorrectly, the entire calculation is faulty. This almost inevitably leads to an under- or overvaluation and the associated financial disadvantages.
You can actively minimise the risks of underinsurance. The following measures effectively protect your assets:
Regularly review your insurance policy: Check your home insurance at least every two to three years. Pay particular attention to the sum insured and the basis of calculation.
Report value-enhancing measures promptly: Inform your insurer immediately about any structural changes such as extensions, energy upgrades, or the installation of expensive systems. A solar system can increase the value by more than 15,000 euros.
Agree to a waiver of underinsurance: Many insurers offer a "waiver of underinsurance" clause. This ensures that the insurer waives the right to check for underinsurance in the event of a claim, often in return for a valuation according to their specifications.
Conduct a professional valuation: The safest way is an independent, up-to-date assessment. A data-driven analysis, such as the one offered by Auctoa, quickly and objectively provides you with today's reinstatement value, establishing the basis for a correct sum insured.
These risk minimisation strategies give you back control.
Traditional estimates or outdated calculation models often can no longer keep up with today's market dynamics. Construction prices rose by 3.2% in February 2025 compared to the previous year alone. An AI-supported, data-driven property valuation by Auctoa analyses thousands of data points to determine a precise, current replacement value. This value serves as a reliable basis for your insurance negotiations and closes the dangerous gap of underinsurance. You gain not only security but also a solid foundation for your entire risk management. Do you have a quick question about your property value? Test our ImmoGPT chat for a first assessment for free now.
Statistisches Bundesamt offers comprehensive information on construction prices and the property price index in Germany.
Statistisches Bundesamt contains detailed tables and data on construction prices and the property price index.
Gesamtverband der Deutschen Versicherungswirtschaft (GDV) provides an article about the underinsurance of buildings against natural hazards in Germany.
Verbraucherzentrale informs about the necessity and important aspects of home insurance for homeowners.
Wikipedia offers a general definition and explanation of the term "underinsurance".
Deutsche Bundesbank provides statistics on real estate and construction performance prices in Germany.
Wikipedia explains the cost approach, a method for property valuation.
Gesetze im Internet (Bundesministerium der Justiz) contains the full text of the Insurance Contract Act (VVG) from 2008.
What exactly is the waiver of underinsurance?
The waiver of underinsurance is a clause in the insurance contract. It means that the insurer declares their waiver of evaluating the insurance sum in the event of a claim, so no reductions are made due to underinsurance. This often comes with conditions, such as the correct specification of living area or valuation according to a certain scheme.
My insurance uses the living area model instead of the 1914 value. Am I still safe?
The living area model is a modern alternative but carries its own risks. If the stated living area isn't accurate or if specific, expensive fittings aren't separately identified, underinsurance can also occur here. Regular checks are important even with this model.
How do solar panels and heat pumps affect the insurance sum?
These installations significantly increase the building's value and must be reported to the insurer. They increase the restoration risk and require adjusting the insurance sum upwards to avoid a coverage gap. Otherwise, underinsurance could occur.
Can I retrospectively rectify underinsurance?
No, adjustments to the insurance sum are only effective for the future. Any already incurred damage will be settled based on the inadequate insurance sum valid at the time of damage. Therefore, proactive management is crucial.
