Cost of living: underinsurance effects 200,000 Aussies

In Australia, 13.1 million homeowners and householders had an active general insurance policy in 2023, according to the Insurance Council of Australia.

A new analysis of over 2,000 reports by MCG Quantity Surveyors revealed Australian residential property alone is underinsured by 18 per cent on average.

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Australian’s who are underinsured could be at risk if disaster strikes. Picture: Jason Edwards

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For a home that has a total insurance value of $650,000 that would leave the homeowner with a shortfall of $117,000 to repair the damage.

A combination of fast-rising construction costs, unreliable automated insurance calculators, Covid-related supply chain, manufacturing issues, and a lack of available labour was contributing to the underinsurance crisis, according to MCG.

Cost-of-living is also forcing many Australians to skimp out on their premiums or cancel expensive insurance all together.

Director of MCG Quantity Surveyors Marty Sadlier said Australian property owners are skating on very thin ice.

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“Many are just one insurance event away from being hundreds of thousands of dollars out of pocket for repairs, putting them under extreme financial stress,” he said.

Cost of living meant many homeowners were unable to pay for full insurance. Photo: Darryn Nufer

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“As such, many households will likely discover in the wake of a disaster that they can’t actually afford to repair or replace their home or investment,” he added.

He said the most concerning reason was the “extraordinary” increase in insurance premiums.

“Put simply, people and businesses can’t afford adequate cover … some are even choosing not to insure because the cost is so high.”

The Insurance Council of Australia said the reason premiums have sky rocketed is due to the increasing value of homes, making them more expensive to replace with inflation pushing up building and supply costs, as well as the increasing cost of doing business for insurers.

“For the insurance industry, there are real concerns about the protection gap – the difference between the cost of repair or replacement and the insurance in place to cover those events,” a spokesperson from the Insurance Council of Australia said.

The Insurance Council of Australia said since the Black Summer Bushfires insurance prices have gone up. Picture: Ian Currie

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“Since the Black Summer Bushfires of 2019-20 insurers have paid out $19 billion in claims from 20 declared insurance catastrophes or significant events. These events continue to impact everyone’s insurance costs.”

Mr Sadlier said a spate of recurring natural disasters in recent years should heighten concern as there’s every chance these events will continue.

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“You can almost set your watch by them. Each year – usually around December and January – we’ll see reports of floods or fires devastating communities and bringing things to a halt,” Mr Sadlier said.

“Unfortunately, many homeowners, business owners and commercial investors will discover all too late that their insurance arrangements are woefully inadequate.”

MCG director Martin Sadlier said Australians were skating on thin ice with their insurance. Picture: Brendan Radk

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The Insurance Council of Australia said the only sustainable way to moderate rising premium costs is to reduce the cost of extreme weather impacts.

“This largely requires action and investment by governments at all levels.”

The Insurance Council said customers could reduce the cost of their insurance by shopping around to make sure they have a product that suits their needs, simplifying their policy to only cover assets they must insure, and lifting the excess payable in the event of a claim.

House owners should make sure their home was accurately valued regularly as construction costs continue to go up. Picture: Richard Walker

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Mr Sadlier said suggested homeowners get their property’s insurance value accurately assessed and regularly updated as construction costs continue to change.

“There is also a role for government to play here,” he said.

“I believe regulation is crucial to stop the insurance industry from quoting outrageous premiums that are decimating businesses and leaving Australians at risk of going broke.”