Your clients’ rebuild costs rose nearly 25% in five years. What to do about it.

Residential reconstruction costs across Canada have increased almost 25% over five years, creating serious insurance-to-value implications for portfolios built on unreliable valuations with outdated or incomplete data, new data from Verisk Canada shows.

According to Verisk Canada’s Q1 2026 Reconstruction Cost Analysis Report, released on Feb. 25, residential rebuild costs increased 24.8% between January 2021 and January 2026, with a 12.4% increase over the past three years.

The persistent growth in reconstruction costs, combined with outdated replacement cost estimates, has exposed significant valuation gaps across many property portfolios, Greg McCutcheon, president of Verisk Canada, tells Canadian Underwriter.

“If you look at it over a five-year period, it’s been as high as 25% in inflation over this period of time, and that’s on an aggregate,” McCutcheon says. “On an individual-by-individual basis… you can have homes that can be underinsured by 80%, sometimes 100%, that we’ve seen in portfolios.”

Rebuild costs still elevated

While catastrophic losses were lower in 2025, the record severe weather season in 2024 forced the industry to confront the reality of replacement cost volatility in a post-pandemic construction environment.

“That year highlighted gaps in insurance-to-value on the residential side and what we call total insured value on the commercial side,” McCutcheon says. “We’ll never return back to pre-COVID construction costs as they were.”

One reason valuation gaps persist is that replacement cost estimates are often updated using standard inflation adjustments rather than current construction data.

“Historically, common practice may have been to use a 4-4.5% inflation guard, but recent upward cost pressures show that is insufficient,” McCutcheon says.

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Instead, he recommends insurers and brokers update replacement cost estimates annually ahead of renewal, using current reconstruction data.

Annual updates also create an opportunity for brokers to ask policyholders about renovations, additions or other property changes that may significantly affect rebuild values.

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“Some of the gaps were simply [because] the data that was previously used to derive replacement costs may not be up to date,” McCutcheon says.

Technology improving risk modelling

“The good news is we have better tools and data available to the industry than ever before,” McCutcheon adds.

Advances in property intelligence, including the use of aerial and streetscape imagery and other location-based data, give the industry far greater visibility into risk exposures across their portfolios, he says. These technologies allow insurers to analyze properties based not only on the building itself but also on surrounding environmental risks.

“We’re able to identify which buildings are more prone to risk based on where they’re located and what’s around them that could cause a problem,” McCutcheon says.

This type of portfolio-level analysis allows insurers and brokers to identify properties where valuations may be outdated or where risk exposures require mitigation.

Inspections and appraisals critical

Now, more than ever, onsite inspections and professional appraisals are essential to identify hidden exposures and protecting a book of business, McCutcheon says. “Risk mitigation has always been the best strategy.”

On the commercial side in particular, building owners have greater discretion in choosing policy limits, which can create additional exposure if replacement values are underestimated.

“If a loss occurs and the building owner has taken too big of a gamble in that calculation, they could find themselves facing significant financial pressures,” McCutcheon says. And so, making accurate valuations and updated appraisals are critical to ensuring commercial properties are insured-to-value, he adds.