Australia is grappling with a mounting underinsurance crisis as rising costs and affordability challenges leave homeowners vulnerable to significant financial losses in the event of disasters, potentially costing them hundreds of thousands of dollars.
According to the Insurance Council of Australia, in 2023, 13.1 million homeowners and householders held active general insurance policies. However, a new analysis by MCG Quantity Surveyors indicates that Australian residential properties are, on average, underinsured by 18 percent.
For instance, a home insured for $650,000 would face a shortfall of $117,000 for repairs if damaged, exposing the homeowner to substantial financial strain.
MCG Quantity Surveyors attribute this underinsurance crisis to a combination of factors including rapidly escalating construction costs, unreliable automated insurance calculators, disruptions in supply chains due to Covid-19, manufacturing challenges, and a shortage of available labor.
Additionally, the cost of living pressures are compelling many Australians to either skimp on insurance premiums or forgo costly insurance altogether.
Marty Sadlier, Director of MCG Quantity Surveyors, emphasized the precarious situation faced by Australian property owners, warning that many are just one insurance event away from enduring severe financial hardships.
He noted, “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.”
Mr. Sadlier expressed deep concern over the “extraordinary” rise in insurance premiums, which has led individuals and businesses to opt for inadequate coverage or even no insurance due to unaffordable costs.
According to the Insurance Council of Australia, soaring premiums are driven by the escalating value of homes, making them more expensive to replace, compounded by inflation-driven increases in building and supply costs, as well as rising operational expenses for insurers.
The Insurance Council highlighted the substantial protection gap between insurance coverage and the actual costs of repair or replacement, especially evident following major events like the Black Summer Bushfires, which have collectively resulted in $19 billion in insurance claims.
Mr. Sadlier stressed the urgent need for accurate and regularly updated property insurance assessments to align with changing construction costs. He also called for government intervention to prevent exorbitant premium hikes that are endangering businesses and leaving Australians financially exposed.
The Insurance Council suggested practical measures for customers to mitigate insurance costs, such as comparing policies to find suitable coverage, simplifying policies to cover essential assets only, and opting for higher excess payments in the event of claims.
In conclusion, addressing the underlying causes of rising insurance premiums, including mitigating extreme weather impacts through government action and investment, is essential to ensuring sustainable and affordable insurance for Australians.
