Are you underinsured?

New research has found that vast numbers of Aussie property owners could have their homes underinsured by up to 66 per cent, leading to devastating financial loses in the event of a claim.

The research by MCG Quantity Surveyors found that some homeowners could be out of pocket hundreds of thousands of dollars.

Marty Sadlier from MCG Quantity Surveyors said the analysis was particularly crucial given that the bushfire and flood season is now upon us.

“This epidemic of underinsurance could prove totally shattering and is due almost entirely to the ongoing use of web-based insurance calculators,” Mr Sadlier said.

“Worst of all, these erroneous calculators continue to be recommended by insurance companies and even government departments, despite long-term evidence of their failings.”

Mr Sadlier said that not only are the calculators constantly in error, but these oversimplified tools exclude fundamental components of insurance that amount to thousands more lost dollars.

“The problem is compounding after decades of being ignored, despite warnings across the insurance and construction industry,” he said.

MCG conducted a review of web-based calculators by comparing them to a detailed professional cost estimation.

“We prepared a report for a new home in Airds, NSW, and calculated the construction cost plus additional sums for demolition, removal of site debris, allowances for cost escalations and consultant’s fees to be $668,559,” Mr Sadlier said. “This figure represents a total insurance value.”

MCG then ran the same information through five popular web-based calculators as recommended by insurance companies – and the variances were staggering.

“The lowest value calculator assessed the insurance value at $226,160 – or 66 per cent below the needed amount, while the highest web-based estimate was $535,000, which is still 20 per cent underinsured.

“Not only do these calculators tend to underestimate construction costs overall, most don’t include amounts for demolition, debris removal, cost escalations and consultant’s fees.”

Mr Sadlier said their example house was not an isolated outcome in his company’s experience, and if these results were extrapolated across the population, the outcome would be devastating for homeowners in need.

“Given the extreme results we’ve observed, any homeowner relying on online calculators could be in dire financial straits after a major insurance event,” Mr Sadlier said.

MCG said that the problem of underinsurance has been decades in the making, but there’s been minimal progress in remedying the situation.

“Unfortunately, little has been done to take these calculators to task and, in fact, customers are being increasingly advised to use them by insurance companies.”

Is your home insurance based on a valuation by a web-based calculator? Are you worried that your insurance assessment isn’t correct?

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Ben Hocking
Ben Hocking
Ben Hocking is a skilled writer and editor with interests and expertise in politics, government, Centrelink, finance, health, retirement income, superannuation, Wordle and sports.
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