Wild weather events set to trigger a devastating wave of underinsurance

With the recent tragic events in NSW and Queensland unravelling before our eyes, the issue of underinsurance has again been raised, this time by MCG Quantity Surveyors who are concerned the event could trigger a wave of underinsurance.

Marty Sadlier, director at MCG Quantity Surveyors, said recent floods and storms in Queensland and NSW will likely trigger a tragic wave of underinsurance that could end up costing property owners hundreds of thousands of dollars.

“Recent weather has wreaked havoc on a huge number of property owners, but things could get even worse as many come to realise how woefully underinsured they are.

“The tragedy is that we predicted this very thing months ago – and it was entirely preventable.”

Mr Sadlier highlighted this looming crisis back in June 2021 as a confluence of factors saw building costs skyrocket in the wake of the pandemic.

He said at the time the cost of building an average Aussie home in capital cities such as Sydney, Brisbane and Melbourne had risen by over 10 per cent in the year to date.

“Given the median construction cost for homes in these cities was around $485,000 that was a price rise of over $48,500 in half a year, but this was just an average.

“Many properties in inner-city suburbs have construction costs well over $1 million.”

Mr Sadlier also noted that the average construction program had increased by as much as an additional 16 weeks due to material and trade shortages.

“Real costs would have gone up by 15 per cent or more once these delay costs were accounted for.

“Also, this only allows for construction costs, insurance is also supposed to cover additional outlays such as professional fees, council charges levees and even emergency accommodation – all of which add to the end amount.”

Mr Sadlier said since last year, the situation had only worsened.

“Prior to the pandemic, insurance council numbers suggested 83 per cent of owners were already underinsured.

“We now believe the percentage is far higher – in fact, I’d be surprised if it wasn’t closer to 100 per cent of owners at risk right now.”

Mr Sadlier said there had been a “triple whammy” of causes for underinsurance in 2022.

“Construction costs have continued to blow out substantially.

“Materials such as timber, glass and steel have seen around a four-fold increases in their cost, add in that labour is already in huge demand with premiums being demanded by good-quality builders.

“Also, supply chain issues have elevated the cost of shipping which has risen by multiples in some cases.”

Mr Sadlier said they have found that most owners self-assess their insurance value when renewing their policy, and then put it in the bottom drawer and forget about it.

“It’s uncommon to find an owner who gives more than cursory thought as to what their rebuild might cost, so it’s rarely updated.

“All in all, it’s simply going to cost far more to rebuild or repair your home now than it would have six to 12 months ago when you last renewed you insurance policy.

“The goal of a proper insurance figure is to return you to the same financial position you were in prior to the insurable event, that’s not covered by the simple cost of building a replacement home.”