Increased cost of construction (code upgrade)

The indemnity principle requires putting the insured back in the position it was in before the loss, no better and no worse. Yet an old building rebuilt after a loss must be rebuilt to the standards applicable on the day of reconstruction: fire safety rules, accessibility, thermal insulation, seismic resistance, electrical standards. The extra cost can be considerable for a building constructed decades earlier, and it is not part of the basic indemnity, since it improves the property. Increased cost of construction cover pays this extra cost within a set limit, often a percentage of the indemnity. It may also cover demolition of undamaged parts that authorities require to be brought up to standard at the same time, and the loss of value of the intact part when a regulation forbids keeping it. In the United States this cover became very important after major catastrophes, where entire neighborhoods had to be rebuilt to stronger building codes. With tighter energy standards in Europe, it is becoming a growing issue for all owners of old buildings, and its absence a source of underinsurance the insured discovers at the time of the loss.