How Property Insurers Can Respond to 2026 Construction Cost Pressure

9 July 2026 / 6 min read

UK construction costs are shifting to a “stair‑step” pattern, driven by energy shocks and geopolitics, where prices rise in sudden jumps, not gradual inflation. Here’s what the 2026 energy‑driven squeeze could mean for repairs and asset budgets, and the practical steps property insurers and supply chains can take now to reduce exposure through H2 2026 and beyond.

construction-workers-on-building

Since 2020, the UK construction industry has operated under relentless cost pressure. A short‑term shock, driven by the coronavirus pandemic and shutdown measures, evolved into sustained inflation across materials, labour, energy, and logistics.^[1] For much of that period, the working assumption—particularly in budgeting for repairs and life cycle works—was that conditions would eventually normalise.

In 2026, that assumption no longer holds.

The industry has entered phase two of the construction cost shock: a market where volatility is no longer exceptional, but structural. The most recent escalation in the Middle East, centred on the effective closure of the Strait of Hormuz, has triggered a secondary energy crisis. Early indications show this reinforcing cost pressures already embedded in UK construction pricing. In March 2026, a net 18% of EU building materials suppliers anticipated increasing their sales prices over the next quarter,^[2] meaning insurers are likely to soon start seeing these reflected in higher overall building and repair costs.

For those responsible for capital works, planned maintenance, and reactive repairs, the implication is clear: this is no longer about recovering from past shocks. It’s about pricing and managing risk in a system that now expects disruption.

From cost shock to cost reset

The defining feature of the cost shock wasn’t any single spike but the accumulation of them.

Container shipping never stabilised after 2021. Energy prices failed to return to pre‑2020 norms. Labour costs ratcheted upward as inflation fed through wages, pension, and statutory employment costs. By 2024–25, the outcome was unmistakable: construction costs had established a permanently higher base.

Approximate Average Cost

In 2026, it’s clear that this new baseline is highly energy sensitive. Unlike earlier phases, today’s increases are rarely reversed. Each disruption leaves pricing on a higher step, not a temporary peak.

For asset managers and cost planners, this means historical averages are now a poor guide to forward budgets, particularly for energy‑intensive trades and materials common in repair and refurbishment work.

Insurers traditionally used historical data to guide budgets, but with increasing volatility, it’s substantially harder to accurately anticipate costs. Underwriters’ biggest current challenges are that properties’ value can quickly become outdated, and scoping damages and refits can be trickier to estimate accurately.

The secondary energy crisis: why 2026 is different

Since February 2026, the conflict in the Persian Gulf has materially disrupted global energy flows. The high risk to crews and vessels navigating the Strait of Hormuz has reduced shipping volumes, increased war risk premiums, and pushed wholesale oil and gas prices sharply higher.

For the UK construction sector, the key issue is not day to day crude prices but the lagged transmission of gas prices into regulated energy costs. Analysts now expect a material rise in the Ofgem energy price cap from 1 July 2026, which could dramatically increase the cost of production for high-energy-use building materials such as plasterboard and bricks.

While Q2 2026 may end up relatively calm, we could see the impact in Q3. Cost pressure arrives not gradually but via reset points that sit outside many contract and budget assumptions.

Navigating 2026 “stair‑step” pricing with agile accuracy

A critical shift in cost forecasting is recognising that prices no longer move smoothly. Instead, they increase in steps, triggered by events such as:

Energy price cap revisions
Fuel and haulage surcharges
Regulatory and tax changes
Geopolitical escalation

Annual inflation assumptions increasingly mask real risk. What matters now is timing—specifically when a material, service, or labour rate crosses into the next pricing tier.

For repair programmes and frameworks running across financial years, this creates significant exposure if step‑changes are missed at tender or budget stage.

Brick-by-brick: where insurers are feeling pricing pressure

Energy-driven pricing is now feeding directly into repair and refurbishment costs.

Energy‑intensive materials such as concrete, cement, and brick are exposed to near-term energy cap effects and longer-term regulation. The expected July 2026 energy cap uplift is likely to feed through rapidly, with previous cycles suggesting approximately a 10% pass‑through to energy‑intensive materials within a single quarter.

Suppliers are already pricing risk in anticipation of the January 2027 UK Carbon Border Adjustment Mechanism (CBAM), which will impose carbon pricing on imported cement and steel. Brick manufacturers reflect the same dynamic. Kiln‑linked energy surcharges mean pricing is increasingly based on forward energy assumptions, not current spot rates—particularly relevant for façade repairs, extensions, and infill works.

Energy Inflation Article Graph 2

The call for accurate estimates is also coming from inside the house, with interior finishes such as plasterboard, paint, and fit-out facing stacked manufacturer and utility-linked increases. A 6% manufacturer increase due from 1 June 2026 establishes a higher Q3 baseline before energy adjustments. In all, interior finishes are expected to move materially above 2025 norms, directly affecting repair works, refurbishments, and fire‑compliance upgrades.

Meanwhile, waste is emerging as a major budget risk, compounding with the fact that it’s among the most consistently under allowed items in early cost planning. The UK Landfill Tax standard rate increases to £130.75 per tonne from 1 April 2026 and, combined with rising diesel costs for haulage, will substantially affect costs for demolition, strip out, and groundworks. Waste disposal now behaves like an energy indexed cost, not a static overhead. However, it’s frequently treated as a fixed cost, creating avoidable budget overruns in repair and enabling works.

Skips Price change graph

If insurers aren’t prepared with the latest data on material costs, there’s a real risk of inaccurate budget forecasting.

Strategic implications for UK property insurers and supply chains

As price volatility becomes the new norm, the most exposed budgets are often those that appear conservative but assume stability. For claims running into H2 2026, it’s vital that insurers review effective risk management steps such as:

Claims severity and loss adjustment expense (LAE) uplift: Energy-driven step-changes in structural works, interior finishes, drying/restoration, and waste disposal can increase average claim cost quickly within a quarter, especially on escape-of-water, fire, and storm repairs.
Sum insured and indexation drift: “Stair-step” pricing makes annual indexation and historical averages a weak proxy; underinsurance risk increases if declared values and rebuild calculators aren’t refreshed more frequently.
Reserving and tail risk: Claims notified in H1 can settle in H2/Q3 pricing tiers; consider scenario-based reserving around July cap changes, fuel surcharges, and other reset points that sit outside standard inflation assumptions.
Supplier and framework performance: Fixed-rate frameworks may break down as utilities and haulage reset; review escalation clauses, evidence requirements for surcharges, and the capacity risk of contractors exposed to energy costs.
Coverage and policy conditions pressure: Higher costs for fire-compliance upgrades and enabling works (strip-out, waste, access) increase the likelihood of scope disputes; clarify treatment of upgrades, betterment, and debris-removal limits before July fuel pass-throughs.
Leakage and fraud controls: Greater volatility in materials and waste pricing widens “reasonable cost” interpretation; strengthen audit trails on skip volumes, disposal routes, and unit rates, and benchmark against current regional pricing.

Effectively pricing for a volatile baseline

The construction cost shock didn’t end; instead it evolved. What began with pandemic disruption has matured into a system where geopolitics, energy policy, and regulation are permanently intertwined. The 2026 energy crisis didn’t create this reality, it simply exposed it.

For the UK insurance, repairer, and construction sectors, success now depends on anticipating the step, not reacting after it lands.

Learn how the latest market-aligned pricing data and granular schedule can help you eliminate inconsistent estimates across your supply chain and validate effective cost-control measures.

[1] https://www.worldbank.org/en/news/press-release/2020/06/08/covid-19-to-plunge-global-economy-into-worst-recession-since-world-war-ii

[2] https://think.ing.com/articles/building-materials-update-the-impact-of-higher-energy-costs/