General Insurance matters

On the radio msig has been giving explanations on gen insurance.
One of this is house insurance

it mentions that if a house is under insured aganist its market value,
anything happens, the insurance will be paid pro rated agnainst the
insured value.

i have a question.

i always think that insured damage to a house is always 'replacement value'.
Therefore the 'value' of a house cannoit be used for insurance calculations
as it includes the land value and foundations of the house which may not be affected by the risks of fire, say.

So how can the gen insurer use Market value when this includes land value?

What say you?